Introduction and summary
In 2016, sandwich chain Jimmy John’s made headlines when it agreed to stop requiring its workers to sign noncompete agreements through a settlement with the attorneys general of New York and Illinois.1 The case caught many worker advocates by surprise. It is well known that, in an effort to protect company trade secrets, corporations often require CEOs and top talent to sign agreements not to join rival firms for a certain period of time. But Jimmy John’s was requiring low-wage sandwich-makers—workers unlikely to hold valuable company secrets—to agree not to work for rival sandwich shops for up to two years after their employment ended.2
Emerging research and litigation have revealed that Jimmy John’s is not the only company to use this tactic. From fast-food workers and check-cashing clerks to health care providers and engineers, companies are requiring workers across income and educational attainment to sign restrictive contractual agreements, such as noncompete contracts and even “no-poaching” agreements between firms.3 Employment contracts often carry these requirements as well as several other provisions—including mandatory arbitration requirements, class-action waivers, and nondisclosure agreements—that may restrict workers’ rights on the job and their ability to leave the job for a better one or to start a new business.
As a result, too many American workers are unfairly stuck in jobs they do not want but cannot leave. Some surveys find that nearly 40 percent of the American workforce is now or has previously been subject to a noncompete agreement at work.4 In addition, in 2016, more than half of franchisors required franchisees to sign no-poaching agreements that prevented their workers from moving between locations.5
Noncompete and no-poaching agreements not only prevent individual workers from moving to better jobs that will allow them to earn more and advance in their careers; they also contribute to larger negative trends in the American economy that are reducing economic dynamism, impeding labor market competition, and, consequently, driving wage stagnation across the economy.