Keith Bollinger’s paycheck as a factory manager shriveled after the 2008 financial crisis, but he got a chance to pull himself out of recession’s hole. A rival textile company offered him a better job – and a big raise.
When he said yes, it set off a three-year legal battle that wiped out his savings along the way.
“I tried to get a better life for my wife and my son, and it backfired,” said Bollinger, 53. “Now I’m in my mid-50s, and I’m ruined.”
Bollinger had signed a noncompete agreement, designed to prevent him from leaving his previous employer for a competitor. These contracts have long been routine among senior executives. But they are rapidly spreading to employees like Bollinger, who do the kind of blue-collar work that President Donald Trump has promised to create more of.
The growth of noncompete agreements is part of a broad shift in which companies assert ownership over work experience as well as work. A recent survey by economists including Evan Starr, a management professor at the University of Maryland, showed that about one in five employees was bound by a noncompete clause in 2014.
Employment lawyers say their use has exploded. Russell Beck, a partner at the Boston law firm Beck Reed Riden who does an annual survey of noncompete litigation, said the most recent data showed that noncompete and trade-secret lawsuits had roughly tripled since 2000.
“Companies of all sorts use them for people at all levels,” he said. “That’s a change.”
Employment lawyers know this, but workers are often astonished to learn that they’ve signed away their right to leave for a competitor. Timothy Gonzalez, an hourly laborer who shoveled dirt for a fast-food-level wage, was sued after leaving one environmental drilling company for another. Phillip Barone, a midlevel salesman and Air Force veteran, was let go from his job after his old company sent a cease-and-desist letter saying he had signed a noncompete.
Then there is Bollinger, whose long-running legal battle is full of twists and turns that include clandestine photography, a private investigator, a mysterious phone call and courthouse victories later undone by losses in appeals court.
“This is the strangest noncompete case I have ever been involved with, or even heard of,” said Michael P. Thomas, Bollinger’s lawyer and a partner at Patrick, Harper & Dixon in Hickory, N.C.
Alan B. Krueger, a Princeton economics professor who was chairman of President Barack Obama’s Council of Economic Advisers, recently described noncompetes and other restrictive employment contracts – along with outright collusion – as part of a “rigged” labor market in which employers “act to prevent the forces of competition.”
By giving companies huge power to dictate where and for whom their employees can work next, noncompetes take a person’s greatest professional assets – years of hard work and earned skills – and turn them into a liability.
“It’s one thing to have a bump in the road and be in between jobs for a little while; it’s another thing to be prevented from doing the only thing you know how to do,” said Max Burton Wahrhaftig, an arborist in Doylestown, Penn., who in 2013 was threatened by his former employer after leaving for a better-paying job with a rival tree service. He was able to avoid a full-blown lawsuit.
Noncompetes are but one factor atop a great mountain of challenges making it harder for employees to get ahead. Globalization and automation have put American workers in competition with overseas labor and machines. The rise of contract employment has made it harder to find a steady job. The decline of unions has made it tougher to negotiate.
But the move to tie workers down with noncompete agreements falls in line with the decades-long trend in which their mobility and bargaining power has steadily declined, and with it their share of company earnings.
When a noncompete agreement is litigated to the letter, a worker can be barred or ousted from a new job by court order. Even if that never happens, the threat alone can create a chilling effect that reduces wages throughout the workforce.
“People can’t negotiate when their company knows they won’t leave,” said Sandra E. Black, an economics professor at the University of Texas at Austin.
The Right to Walk Away
In 2011, Timothy Gonzalez started working as a labor hand for a company called Singley Construction. He was 18 years old and already a father, and the extent of his education was a high school equivalency test. In other words, he needed money and didn’t have many options.
Gonzalez started at a little over $10 an hour in a job he described as “pretty much shoveling dirt.” Nevertheless, he signed an employment contract that included a noncompete clause, enforceable for three years within 350 miles of Singley’s base in Columbia, Miss.
“All I heard – at that age and the situation I was in – was just, ‘If you want a paycheck, sign here,’ and so I signed there and went to work,” said Gonzalez, 24, who lives in Milton, Fla.
Gonzalez was later promoted to a job where he operated an environmental drilling rig. After leaving the company two years ago, and subsequently taking a better-paying position with a competitor, Gonzalez was sued for violating his agreement not to compete. His new boss, Gary Hill, owner of Walker-Hill Environmental, an environmental drilling company, said he ignored the suit for two weeks because he didn’t believe it was real.
“I said, ‘There’s no way this will happen,’ but I’ll be danged if I didn’t have to attorney-up and fight the thing,” said Hill, who settled the case out of court. “It’s ridiculous – it’s slavery in the modern-day form.”
Representatives of Singley Construction declined to comment.
The surprise Gonzalez got is not uncommon. Many workers, not just blue collar but people who went to college or have an advanced degree, have only a vague understanding of what a noncompete is, and they are often asked to sign one when they have little chance to negotiate.
In a 2011 paper that surveyed technical workers who had signed noncompetes, Matthew Marx, a professor at the Sloan School of Management at MIT, found that employers typically presented workers with noncompete contracts when the employees lacked negotiating leverage, on their first day at work, for instance.
“By then, they had said yes to their company, and no to the other companies they were negotiating with,” Marx said.
Companies have always owned their employees’ labor, but today’s employment contracts often cover general knowledge as well. In addition to noncompete clauses, there are nonsolicitation and nondealing agreements, which prevent employees from calling or servicing customers they have worked with in the past. There are nonpoaching agreements that prevent employees from trying to recruit old colleagues.
Put it all together, and suddenly some of the main avenues for finding a better-paying job – taking a promotion with a competitor, being recruited by an old colleague – are cut off.
Companies say this is a natural reaction in an economy that is more about knowledge and less about sweat. Data makes up a larger share of many companies’ assets, and the more people work around the clock, and remotely, often switching between company-owned and personal devices, the more difficult it becomes to guard it.
“When a person takes a trade secret and walks across the street to another company, how am I going to know that?” said Paul T. Dacier, a longtime technology executive who was once general counsel for EMC Corp., and today serves in the same position for an agriculture technology startup called Indigo. “And when I do find out, it’s too late.”
The problem is that it can be hard to distinguish true intellectual secrets from the accumulated skills that make workers more valuable. And since few companies want to lose good workers or give out huge raises, these agreements are making their way down the economic ladder to people like hairstylists and sandwich makers, far removed from what is thought of as the knowledge economy.
Noncompete enforcement varies from state to state, and economists have used that disparity to study how they affect businesses and the economy. The results are almost universally negative: Wages, employment and entrepreneurship are all diminished when workers have little leverage to bargain with their employer or leave a job for a better opportunity.
Some workers end up idle, collecting unemployment and using programs like Medicaid. Many others take jobs well below their means, robbing the nation of their skills.
Noncompetes damage regional economies as well. States with strict enforcement end up suffering a brain drain, by encouraging their best and smartest workers to move elsewhere for better pay.
The great counterexample, which comes up in just about every discussion of the subject, is the growth of Silicon Valley.
California law prohibits noncompete clauses, contributing to the inveterate poaching with which the state’s technology industry was founded. It can be brutal for employers, but it helps raise wages and has created a situation where any company looking to hire a bunch of engineers in a hurry, be it an established giant or a startup, feels it should locate there.
“It’s not just that it allows employees to leave their company for another job,” said Mark A. Lemley, a professor at Stanford Law School. “It allows them to leave to start new companies.”
Recognizing this, several states have moved to curb the use of noncompetes. This includes Democratic-leaning states like Massachusetts as well as Republican-leaning ones like Utah, which last year passed a bill limiting the scope of the agreements.
Mike Schultz, the bill’s Republican sponsor, framed it with the most conservative of talking points: the right to work.
“If an employer can fire anybody for any reason,” he said, “employees also need to have the right to walk.”