For decades, some employers have required white-collar employees to sign agreements preventing them from taking trade secrets and other intellectual property to competing businesses. In recent years, however, a few employers have begun requiringto sign noncompete agreements, too.
It may well be a short-lived trend.
Amazon recently announced it will no longer require nonexempt, hourly workers to sign noncompete agreements. Although the company claimed that it had never actually enforced one, the agreements could have complicated the lives of many a departing Amazon worker. Considering the many hats the company wears—retailer, shipper, technology company and more—countless other employers might be considered Amazon competitors. Amazon eventually concluded that its business success didn’t depend on locking out job opportunities for former blue-collar employees.
Traditionally, noncompete agreements have bound white-collar workers. One study found that half of engineers sign noncompetes when hired; one-third of those agreements last a year beyond the employee’s termination date.
Forcing nonexempt workers to sign noncompetes, however, is a relatively new phenomenon. In 2014, nationwide deli chain Jimmy John’s made headlines when word got out that it required some employees to agree not to work at competing sandwich shops for a period of two years. The resulting bad press caused some franchisees to drop the noncompetes. Apparently, stopping minimum-wage workers from getting another restaurant job just went too far.
Critics of noncompete agreements argue that the pacts limit worker mobility and chill the economy. Some analysts credit much of Silicon Valley’s growth to California’s almost complete ban on noncompete agreements.
Only North Dakota also bans noncompetes, but prohibitions are gaining traction in other states.
In light of the backlash, it might be worth considering whether you really need hourly employees to sign noncompete agreements. Your attorney can help you craft other, less draconian strategies for protecting your trade secrets.