Many workers barely recall signing noncompetes, until they try to change jobs

Joby George was 21 years old when he got his first job out of college, working for a software company focused on the pharmaceutical industry.

He stayed with the company for 14 years, excited to play a role in making the medicines people take every day. When he eventually decided it was time for a change, he realized he might have a problem.

"I don't remember exactly signing a noncompete, because there are a lot of forms you have to sign when you get hired," he says.

But indeed he had. And now, his employer was not happy about him leaving for a new job at another software company in the pharmaceutical space — even though, George says, he had no trade secrets to take with him.

Nevertheless, his company sued.

One in five U.S. workers have signed noncompetes

Researchers estimate that one in five workers in the U.S. — some 30 million people — have signed noncompete agreements, prohibiting them from taking jobs at similar businesses or starting a rival business of their own within a certain time period, typically six months to two years.

Companies have long said noncompetes are necessary to protect their intellectual property and investments.

But now the Federal Trade Commission is looking into banning the agreements, saying they suppress wages, hamper innovation, and deprive workers of their economic liberties. This month the agency proposed a new rule barring employers from using them, both with employees and contractors.

Already, some are challenging whether the FTC even has the jurisdiction to make such a sweeping change, affecting tens of millions of workers across the country. Others are celebrating the move.

"People have a fundamental right to make their own career choices," said Peter Gassner, CEO of Veeva Systems, the software company that hired George and supported him and dozens of others in fighting noncompetes. "The mobility of talent has created the most innovative companies in the world."

The case against George was eventually dropped.

Low-wage workers like house cleaners are also bound by noncompetes

Najah Farley, a senior staff attorney with the National Employment Law Project, says the FTC's proposed rule would help protect low-wage workers, millions of whom are subject to noncompetes.

"We definitely were encouraging them to do this — to make a rule," says Farley, who has worked on state legislation aimed at curbing the use of noncompetes. "I think they'll be able to tackle this problem from a very wide-ranging level."

In her previous role with the New York State Attorney General, Farley worked on a famous noncompete case against the fast-food sandwich chain Jimmy John's, and later heard from other low-wage workers bound by noncompetes, including security guards, house cleaners, and cafeteria workers.

Low-wage workers generally don't have the means to challenge their employers or sit on the sidelines until their noncompetes expire, Farley says. The only way many of them are able to secure meaningful wage increases is by changing jobs.

"So if you're in a situation where you can't get another job in your industry, or you can't get another job in your vicinity, you're obviously going to be limited in your ability to raise your compensation," she says.

A chilling effect on workers

While noncompetes are widespread, lawsuits over them are not, says Matt Marx, a professor at Cornell University who studies the employment agreements.

"It's more of a chilling effect — that when you're subject to a noncompete, you think you might get sued," he says. "And so it is more the expectation and fear that drives your behavior."

That's what happened with Robin Catalano after she quit her job of five years, blogging and managing social media for a home décor company.

She had signed a noncompete clause that prohibited her from working for another home décor company for one year — which was a problem, given her expertise in fabrics, dyes and the design process.

She says the terms of her noncompete would have made more sense had she been the CEO of the company, with plans to start up a rival business. But her plan was to become a freelance writer.

"I'm a sole proprietor. I am providing for myself and my cats," she says. "It's not the same."

Still, for a whole year, she didn't pitch herself to other employers in the home décor industry, a setback for her fledgling business.

"I am a rule follower, for better or worse," she says, noting that she's now much more careful about what she signs.

There are alternate ways to protect trade secrets

Even those who generally support the use of noncompetes point out that there are other ways to protect trade secrets.

Kevin Vozar, senior director of business development and owner relations with Cabins For You, says his company has plenty of confidential information he wouldn't want an employee walking off with, such as marketing strategies and pricing tools.

The property management company handles vacation rentals in the Great Smoky Mountains, where competition is stiff.

"We're all going after the same property owners to add inventory to our platform. We're all also going after that same finite group of vacationers who are coming here," he says.

But at Cabins For You, most employees don't have noncompetes, Vozar says. Instead they sign nondisclosure and nonsolicitation clauses, which prohibit them from divulging company secrets including client lists.

Still, he says, noncompetes may be necessary in places like research institutions, and in industries like biotech.

"I would not agree with a blanket — you know, getting rid of all noncompetes nationwide for all industry spaces. I think that's being a little short-sighted," Vozar says. "I do believe there is room for noncompetes in a very limited spectrum."

Workers can protect themselves

Cornell's Marx hopes that, whatever comes of the FTC's proposed ban on noncompetes, there will simply be more awareness all around.

"People need to ask, 'Am I going to have to sign a non-compete?' They need to negotiate the length," he says. "And they are negotiable."

Catalano, for example, now routinely asks that the clauses be stripped from freelancing agreements and says most employers are okay with it.

In his past private-sector life, Marx both signed noncompetes and, as a boss, asked employees to sign them. But after working in California, where noncompetes have long been unenforceable, he came to realize that without them, he became a better manager.

"It kept me on my toes thinking, 'How do I keep people engaged?'" he says. "Every day and every week, you have to keep convincing them that this is where they want to be."