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Can We Justify Non-Compete Clauses?

photograph of a maze of empty office cubicles

In the State of the Union, President Joe Biden claimed that 30 million workers have non-compete clauses. This followed a proposal by the Federal Trade Commission to ban these clauses. Non-compete clauses normally contain two portions. First, they prohibit employees from using any proprietary information or skills during or after their employment. Second, they forbid employees from competing with their employer for some period of time after their employment. “Competing” normally consists of working for a rival company or starting one’s own business in the same industry.

Non-compete agreements are more common than one might expect. In 2019, the Economic Policy Institute found that about half of employers surveyed use non-compete agreements, and 31.8% of employers require these agreements for all employees.

While we often think of non-compete agreements as primarily being found in cutting-edge industries, they also reach into less innovative industries. For instance, one in six workers in the food industry have a non-compete clause. Even fast-food restaurants have used non-compete clauses.

Proponents of non-compete clauses argue that they are important to protect the interests of employers. The Bureau of Labor Statistics estimates that, in 2021, the average turnover rate (the rate at which employees leave their positions) in private industry was 52.4%. Although one might think the pandemic significantly inflated these numbers, rates from 2017-2019 were slightly below 50%. Businesses spend a significant amount of money training new employees, so turnover hurts the company’s bottom line  – U.S. companies spent over $100 billion on training employees in 2022. Additionally, the transfer of skilled and knowledgeable employees to competitors, especially when those skills and knowledge were gained at their current position, makes it more difficult for the original employer to compete against rivals.

However, opponents argue that non-compete clauses depress the wages of employees. Being prohibited from seeking new employment leaves employees unable to find better paying positions, even if just for the purposes of bargaining with their current employer. The FTC estimates that prohibiting non-compete clauses would cause yearly wage increases in the U.S. between $250 and $296 billion. Further, for agreements that extend beyond their employment, departing employees may need to take “career detours,” seeking jobs in a different field. This undoubtedly affects their earnings and makes finding future employment more difficult.

It is worth noting that these arguments are strictly economic. They view the case for and against non-compete clauses exclusively in terms of financial costs and benefits. This is certainly a fine basis for policy decisions. However, sometimes moral considerations prevail over economic ones.

For instance, even if someone provided robust data demonstrating that child labor would be significantly economically beneficial, we would find this non-compelling in light of the obvious moral wrongness. Thus, it is worthwhile to consider whether there’s a case to be made that we have moral reason to either permit or prohibit non-compete agreements regardless of what the economic data show us.

My analysis will focus on the portion of non-compete clauses that forbids current employees from seeking work with a competitor. Few, I take it, would object to the idea that companies should have the prerogative to protect their trade secrets. There may be means to enforce this without restricting employee movement or job seeking, such as through litigation. Thus, whenever I refer to non-compete agreements or clauses, I mean those which restrict employees from seeking work from, or founding, a competing firm both during, and for some period after, their employment.

There’s an obvious argument for why non-compete clauses ought to be permitted – before an employee joins a company, they and their employer reach an agreement about the terms of employment which many include these clauses. Don’t like the clause? Then renegotiate the contract before signing or simply find another job.

Employers impose all sorts of restrictions on us, from uniforms to hours of operation. If we find those conditions unacceptable, we simply turn the job down. Why should non-compete agreements be any different? They are merely the product of an agreement between consenting parties.

However, agreements are normally unobjectionable only when the parties enter them as equals. When there’s a difference in power between parties, one may accept terms that would be unacceptable between equals. As Evan Arnet argues in his discussion of a prospective right to strike, a background of robust workers’ rights is necessary to assure equal bargaining power and these rights are currently not always secure. For most job openings, there are a plethora of other candidates available. Aside from high-level executives, few have enough bargaining power with their prospective employer to demand that a non-compete clause be removed from their contract. Indeed, even asking for this could cause a prospective employer to move on to the next candidate. So, we ought to be skeptical of the claim that workers freely agree to non-compete clauses – there are multiple reasons to question whether workers have the bargaining power necessary for this agreement to be between equals.

One might instead appeal to the long-run consequences of not allowing non-compete agreements. The argument could be made as follows. By hiring and training employees, businesses invest in them and profit from their continued employment. So perhaps the idea is that, after investing in their employees, a firm deserves to profit from their investment and thus the employee should not be permitted to seek exit while still employed. Non-compete clauses are, in effect, a way for companies to protect their investments.

Unfortunately, there are multiple problems with this line of reasoning. The first is that it would only apply to non-compete agreements in cases where employees require significant training. Some employees may produce profit for the company after little to no training. Second, this seems to only justify non-compete clauses up to the point when the employee has become profitable to the employer – not both during and after employment. Third, some investments may simply be bad investments. Investing is ultimately a form of risk taking which does not always pay off. To hedge their bets, firms can instead identify candidates most likely to stay with the company, and make continued employment desirable.

Ultimately, these argument regarding what a company “deserves” lays bare the fundamental moral problem with non-compete agreements: they violate the autonomy of employees.

Autonomy, as a moral concept, is about one’s ability to make decisions for oneself – to take an active role in shaping one’s life. To say that an employee owes it to her employer to keep working there is to say that she does not deserve autonomy about what does with a third of her waking life. It says that she no longer has the right to make unencumbered decisions about what industry she will work in, and who she will work for.

And this is, ultimately, where we see the moral problem for non-compete clauses. Even if they do not suppress wages, non-compete agreements restrict the autonomy of employees. Unless someone has a large nest egg saved up, they may not be able to afford to quit their job and enter a period of unemployment while they wait for a non-compete clause to expire. Especially since voluntarily quitting may disqualify you from unemployment benefits. By raising the cost of exit, non-compete clauses may eliminate quitting as a viable option. As I have discussed elsewhere, employers gain control over our lives while we work for them – non-compete agreements aim to extend this control beyond the period of our employment, further limiting our ability to choose.

As a result, even if there were not significant potential financial benefits to eliminating non-compete agreements, there seems to be a powerful moral reason to do so. Otherwise, employers may restrict the ability of employees to make significant decisions about their own lives.

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Workers’ Well-Being and Employers’ Duties of Care

photograph of amazon warehouse

If you’ve been working from home during the pandemic then there’s a good chance your employer has sent you an email expressing their concern about your well-being and general level of happiness. Perhaps they’ve suggested some activities you could perform from the comfort of your own home working space, or offered Zoom classes or workshops on things like meditation, exercise, and mindfulness. While most likely well-intentioned, these kinds of emails have become notorious for being out of touch with the scale of the stresses that workers face. It is understandable why: it is, after all, unlikely that a half-hour mindfulness webinar is going to make a dent in the stress accumulated while living in a pandemic over the last year.

It goes without saying that the pandemic has taken a toll on many people’s physical and mental health. And while employers certainly have obligations towards their employees, do they have any specific duties to try to improve the well-being of their employees that has taken a hit during the pandemic?

In one sense, employers clearly do have some obligations towards the happiness and well-being of their employees. Consider, for instance, a recent scandal involving Amazon: the company baldly denied a statement that some Amazon workers were under so much pressure at their jobs that they were unable to take bathroom breaks, and were forced to urinate in bottles instead. Great quantities of evidence were then quickly accumulated that such practices were, in fact, taking place, and Amazon was forced to issue a weak conciliatory reply. It is reasonable in this case to say that Amazon has put their workers in situations in which their well-being is compromised, and they have an obligation to treat them better.

“Don’t make your workers pee in bottles” is an extremely low bar to clear, and it is an indictment of our times that it has to be said at all. People working from home offices, however, are typically not in the same circumstances: while they likely have access to washrooms, their stressors will instead be those that stem from isolation, uncertainty, and many potential additional burdens in the form of needing to care for themselves and others. So, as long as an employer is allowing its employees to meet a certain minimal standard of comfort, and assuming that those working from home during the pandemic meet this standard, do they have any additional obligations to care for employees happiness and well-being?

One might think that the answer to this question is “no.” One reason why we might think this is that we typically regard one’s own happiness as being one’s own responsibility. Indeed, much of the recent narrative on happiness and well-being emphasizes the extent to which we have control over these aspects of our lives. For example, consider a passage from a recent Wall Street Journal article, entitled “Forget What You Think Happiness Is,” that considers how the pandemic has impacted how we conceive of happiness:

“Mary Pipher, clinical psychologist and author of ‘Women Rowing North’ and ‘Reviving Ophelia,’ says the pandemic underscored what she long believed: that happiness is a choice and a skill. This past Christmas, she and her husband spent the day alone in their Lincoln, Neb., home, without family and friends, for the first time since their now adult children were born. ‘I thought, ‘What are we going to do?’ We went out for a walk on the prairie and saw buffalo. I ended up that day feeling really happy.’”

If happiness is a choice then it is not a choice that I can make for you; if happiness is a skill then it’s something you have to learn on your own. Perhaps I can help you out – I can help you learn about happiness activities like gratitude exercises, meditation, and mindfulness – but the rest is then up to you. If this is all we’re able to do for someone else, then perhaps the mindfulness webinars really are all we are entitled to expect from our employers.

There are a couple of worries here. First, to say that “happiness is a choice and a skill” is clearly a gross oversimplification: while serendipitous buffalo sightings will no doubt lift the spirits of many, happiness may not be so easily chosen for those who suffer from depression and anxiety. Second, while there is a lot of hype around the “skills” involved in acquiring happiness, empirical studies of gratitude interventions (as well as the notion of “gratitude” itself), meditation, and mindfulness (especially mindfulness, as discussed here, and here), have had mixed results, with researchers expressing concerns over vague concepts and a general lack of efficacy, especially when it comes to those who are, again, suffering from depression and anxiety. Of course, such studies concern averages across many individuals, meaning that any or all of these activities may work for some while failing to work for others. If you find yourself a member of the former group, then that’s great. A concern, however, is that claims that there are simple skills that can increase happiness are still very much up for debate within the psychological community.

Of course, those working from home will likely have much more practical roots of their decreased happiness; a guided meditation session over Zoom will not, for instance, ameliorate one’s childcare needs. Here, then, is the second worry: there are potentially much more practical measures that employers could take to help increase the happiness and well-being of employees.

For comparison, consider a current debate occurring in my home province of Ontario, Canada: while the federal government has made certain benefits available to those who are forced to miss work due to illness or need to quarantine, many have called on the provincial government to create a separate fund for paid sick days. The idea is that since the former is a prolonged process – taking weeks or months for workers to receive money – this disincentivizes workers to take days off when they may need to. This can result in more people going into work while sick, which is clearly something that should be minimized. The point, then, is that while recommendations for how you can exercise at your desk may be popular among employers, it seems that it would be much more effective to offer more practical solutions to problems of employee well-being, e.g., allowing for more time off.

The question of what an employer owes its employees is, of course, a complex one. While there are clear cases in which corporations fail to meet even the most basic standard of appropriate treatment of its employees – e.g., the recent Amazon debacle – it is up for debate just how much is owed to those with comparatively much more comfortable jobs working from home. Part of the frustration, however, no doubt stems from the fact that if employers are, in fact, concerned about employee well-being, then there are probably better ways of increasing it than offering yet another mindfulness webinar.

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U-Haul’s Anti-Smoking Workplace Wellness

photograph of overcrowded UHaul rental lot

This article has a set of discussion questions tailored for classroom use. Click here to download them. To see a full list of articles with discussion questions and other resources, visit our “Educational Resources” page.

U-Haul International recently announced that, beginning next month, the company will not hire anyone who uses nicotine products (including smoking cessation products like nicotine gum or patches). The new rule will take effect in the 21 states that do not have smoker protection laws. The terms of employment will require new hires to submit to nicotine screenings, placing limits on employees’ lawful, off-duty conduct.

The truck and trailer rental company has defended the new policy as nothing more than a wellness initiative. U-Haul executive Jessica Lopez has described the new policy as “a responsible step in fostering a culture of wellness at U-Haul, with the goal of helping our Team Members on their health journey.” But as the LA Times points out, “Simply barring people from working at the company doesn’t actually improve anyone’s health.”

U-Haul, however, is not alone, and employer bans on smoking are not new. Alaska Airlines has had a similar policy since 1985, and many hospitals have had nicotine-free hiring policies for over a decade. But there are important distinctions between these past policies and U-Haul’s new policy. Alaska Airlines’ ban was, at least in part, justified by the risk and difficulty of smoking on planes and in places surrounding airports; smoking simply isn’t conducive to that particular work environment. Meanwhile, hospitals’ change in hiring process was meant to support the healthy image they were trying to promote, and to demonstrate their commitment to patient health.

Interestingly (and importantly), U-Haul has not defended its new policy as a measure to improve customer experience or improve employees’ job performance. The (expressed) motivation has centered on corporate paternalism – U-Haul’s policy intends to protect their (prospective) employees’ best interests against their employees’ expressed preferences – and this has significant implications. This isn’t like screening for illicit drugs or forbidding drinking on the job. As Professor Harris Freeman notes, it “makes sense to make sure people are not intoxicated while working … there can be problems with safety, problems with productivity.” But in prohibiting nicotine use, U-Haul “seems like they’re making a decision that doesn’t directly affect someone’s work performance.” Unlike Alaska Airlines or Cleveland Clinic,

“This is employers exercising a wide latitude of discretion and control over workers’ lives that have nothing to do with their own business interests. Absent some kind of rationale by the employer that certain kind of drug use impacts job performance, the idea of telling people that they can’t take a job because they use nicotine is unduly intrusive into the personal affairs of workers.”

Similarly, the ACLU has argued that hiring policies like these amount to “lifestyle discrimination” and represent an invasion of privacy whereby “employers are using the power of the paycheck to tell their employees what they can and cannot do in the privacy of their own homes.” This worry is further compounded by the fact that,

“Virtually every lifestyle choice we make has some health-related consequence. Where do we draw the line as to what an employer can regulate? Should an employer be able to forbid an employee from going skiing? or riding a bicycle? or sunbathing on a Saturday afternoon? All of these activities entail a health risk. The real issue here is the right of individuals to lead the lives they choose. It is very important that we preserve the distinction between company time and the sanctity of an employee’s private life. Employers should not be permitted to regulate our lives 24 hours a day, seven days a week.”

Nicotine-free hiring policies or practices that levy surcharges on employees who smoke tend to rely heavily on the notion of individual responsibility: employees should be held accountable for the financial burden that their personal choices and behaviors place on their employers and fellow employees. But these convictions seem to ignore the fact that smoking is highly addictive, and 88% of smokers formed these habits before they were 18. Given this, the issue of accountability cannot be concluded so cleanly.

Apart from concerns of privacy or questions about individual responsibility, smoking bans on employment present a problem for equality of opportunity. According to the CDC, about 14 percent of adults in the U.S. smoke cigarettes. But smokers are not evenly distributed across socioeconomic and racial groups. For instance, half of unemployed people smoke; 42% of American Indian or Alaska Native adults smoke, 32% of adults with less than a high school education smoke; and 36% of of Americans living below the federal poverty line are smokers. It’s not hard to see that nicotine-free hiring practices disproportionately burden vulnerable populations who are already greatly disadvantaged. U-Haul’s low-wage, physical labor jobs, from maintenance workers to truck drivers to janitors, are restricted from those who may need them most (on grounds that have nothing to do with a candidate’s ability to perform job-related tasks).

This is no small thing; the Phoenix-based moving-equipment and storage-unit company employs roughly 4,000 people in Arizona and 30,000 across the U.S. and Canada. Lopez has claimed that “Taking care of our team members is the primary focus and goal” and that decreasing healthcare costs is merely “a bonus,” but it’s hard to separate the two. A recent study by Ohio State University estimated the cost employees who smoke pose to employers. Added insurance costs as well as the productivity lost to smoke breaks and increased sick time amounted to nearly $6,000 annually. Clearly, employee health, insurance costs, and worker output are all linked, and all contribute directly to a company’s profitability. The question is who should have to pay the cost for the most preventable cause of cancer and lung disease: employers or employees?

It may be that the real villain here is employer-sponsored insurance. By decoupling one’s employment from one’s healthcare, companies like U-Haul might be less invested in meddling with their employees’ off-duty choices. They have much less skin in the game if their employees’ behaviors aren’t so intimately tied to the company’s bottom line. Unless healthcare in the US changes, we may be destined to constantly police the line separating our private lives from our day jobs.

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Employee Wellness vs. Privacy in Houston

As Americans continue to top the charts of obesity and unhealthy lifestyle choices, employers around the country are beginning to look for ways to improve the work environment by promoting exercise and other activities that promote employees’ overall health. Many companies are encouraging employees to sign up for online programs that are able to track a person’s exercise and diet, as well as monitor any health changes that may occur in a person’s life. These programs, although beneficial in many ways, have also raised suspicions about the amount of privacy and protection employees who share their information have. Are these online programs and mobile applications able to share personal information about the people using the resources?

An article from Friday, October 2nd by Jay Hancock, discusses the city of Houston and the encouragement of employees to use one of these online wellness companies as a way to track health changes. The privacy agreement that accompanied this partnership was frustrating to many employees who were wary about sharing their person information, as it was unclear as to how much and what information could have been shared with other companies and potentially the public. Although employees were able to opt out of the program, they were then forced to pay an extra $300 per year for medical coverage. This lack of communication about the privacy and protection of information shared with this company sparked concern from several employees and therefore was not widely accepted among the residents of Houston.

The implementation of these wellness-tracking programs argue that it is an efficient and effective way to hold employees accountable for staying healthy. A healthy employee arguably performs to the best of his/her ability because his/her body is being taken care of properly. These programs also help companies interpret the data collected and make changes to the work environment based on the information gathered. As the U.S. continues to become one of the unhealthiest countries in the world, these wellness programs could be the answer to holding people accountable and making Americans healthier people.

Should employees be forced to sign up for wellness programs in order to promote their own health? How much privacy is acceptable for wellness programs to provide to the people who subscribe to their services? Is the implementation of wellness programs in the work place an efficient and ethically sound decision for companies to make based on the unhealthy state of our country?