For more and more Americans, getting a job means locking themselves into a single company for their type of work in the local region or beyond.
The chain that restrains workers is the noncompete clause.
The clause, which also goes by the name of noncompete agreement and covenant not to compete, usually hides within a stack of employment forms. One fills out and signs such paperwork on the first day of a new job.
Sometimes the clause is presented as part of a contract. New owners of a business can foist a noncompete clause on workers during “rehiring,” despite having held the same jobs for years under previous owners without restriction. The clause can apply to permanent or temporary positions.
However presented, a noncompete clause’s trigger mechanism and outcome are the same: Leave one company for a new job with a competing company before a waiting period of six months to two years, and a lawsuit against you and your new employer will arrive before you settle in.
Noncompete clauses are used by 21 percent of companies with more than 5,000 employees and 12 percent of companies with fewer than 25 employees, says a paper by professors at the University of Maryland and the University of Michigan.
The American freedom to choose one’s employment is as old as the nation.
“Life, liberty and the pursuit of happiness” are “unalienable rights” spelled out in the second sentence of the Declaration of Independence. The declaration was drafted by Thomas Jefferson and passed by the Second Continental Congress on July 4, 1776.
The people of the United States “secure the blessings of liberty,” says the Constitution’s preamble.
Liberty, to be clear, is “The quality or state of being free; the power to do as one pleases,” as defined by the Merriam-Webster Dictionary.
CEO TO SANDWICH-MAKER
Once, the practice of requiring a noncompete clause was limited to a position such as chief executive officer or membership on a company’s board of directors. These are among several top-of-pyramid roles involved with the strategy of a company, which is often secret. In many companies, those few people are compensated greatly. They are provided a cushion to leave in luxury and, after a rejuvenating break, flourish elsewhere.
Now, noncompete clauses appear in the paperwork for new employees such as middle managers, fast-food workers and laborers. This restrictive practice has spread to the bottom of the employment pyramid. Neither strategic secrets nor necessity reside in this broad base.
Noncompete clauses result in workers avoiding new jobs, ignoring new opportunities.
Contract-happy employers run rampant over job-needy workers across the nation, except in California. The state bans noncompete clauses. Limitations have been considered by other states but are few.
One might expect a noncompete prohibition to mute competition between companies. History shows otherwise.
Silicon Valley, an area of California south of San Francisco, is known for high-tech innovation and wealth. The valley enables entrepreneurs to establish companies that expand like the big bang.
The prototype for Silicon Valley was HP, which preceded silicon chips — integrated circuits. The 1939 company was born in a Palo Alto garage by Bill Hewlett and David Packard to design and build electronics.
The modern model is 1998’s Google, created by Larry Page and Sergey Brin in a Menlo Park rental garage, after their early work in a Stanford dorm room.
The Silicon Valley standard is Apple. Steve Jobs and Steve Wozniak founded the 1976 company in the Los Altos garage of Jobs’ parents. There, the pair built the Wozniak-designed Apple I computer, which sold for $666.66. Thirty-eight years later, Apple became the first U.S. company to reach a value of $700 billion. Today, it is world’s most valuable company — publicly traded, by market capitalization.
The garage model of entrepreneurship continues to proliferate. It is not angelic: Apple and Google were caught in a 2005-2009 pay-fixing pact to stop engineers and programmers from switching companies. Nonetheless, Silicon Valley’s entrepreneurial companies continue to emerge and blossom under California’s ban on noncompete clauses.
Choosing one’s course and determining one’s future are liberties that define the American Way. Most people make their income from companies. When companies use noncompete clauses, they stifle freedom as a way to make workers dependent.
In the name of liberty, all states — if not Congress or a federal court — should ban noncompete clauses. Nothing could be more un-American than restricting one’s independence.