The Problem with Non-Compete Agreements in a Freelance World
Fast-food joint Jimmy John’s makes all of its employees sign a non-compete agreement, which seems kind of silly. What trade secrets, exactly, are low-level sandwich makers privy to? Ingredients, maybe? Any sufficiently experienced home chef can crack that case (e.g., my favorite Jimmy John’s sandwich is just a bunch of vegetables — which I can buy anywhere — on some bread — which I can also buy anywhere).
As it turns out, the Jimmy John’s non-compete agreement is more than a weird corporate quirk: it’s downright “psychotic,” in the words of Jezebel’s Kitchenette. The agreement prevents Jimmy John’s employees from working for any of Jimmy John’s competitors for two years after leaving the company – a rather lengthy period of probation. To make matters worse, Jimmy John’s identifies competitors as “any business which derives more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which is located within three (3) miles of either [the Jimmy John's location in question] or any such other Jimmy John’s Sandwich Shop.”
In other words, Jimmy John’s employees can’t work for any other restaurant for two years after leaving Jimmy John’s. Workers who spend time gaining food-service experience at Jimmy John’s essentially cannot put their experience to use at other restaurants (at least, not for two full years). How anyone at Jimmy John’s thought this was okay — and not legitimately oppressive — is beyond me.
What Good Are Non-Compete Agreements in an Increasingly Flexible Economy?
The Jimmy John’s debacle is not a one-off, “bad-apple” type of situation. The world abounds with examples of overbearing non-compete clauses. Take, for example, this story from Fort Myers Florida Weekly:
“[A] neurosurgeon with a specialty so rare he’s the only doctor between Tampa and Miami who can perform a life-saving procedure finds himself sued by Lee Memorial Health System because he broke his 50-mile-radius, non-compete clause and took up his practice at NCH, 35 miles away in Naples.
This was Dr. Eric Eskioglu, who joined Lee Memorial in 2006, and then resigned suddenly in 2011. The case was settled out of court, allowing Dr. Eskioglu to continue performing a surgery to treat brain aneurysms with coil embolization, which is minimally invasive, in Naples.”
Yes: a non-compete clause that tried to prevent a doctor from performing “life-saving procedures.” Forget protecting your business: when you make an employee sign an agreement that endangers people’s lives, you may want to rethink the necessity of that agreement.
Of course, this is an extreme case — but still, I want to use it to illustrate a point: the businesses who make their employees sign non-compete agreements are looking out for the bottom line. You can’t exactly blame them for that: businesses are designed to make money. But you can blame these companies for privileging their profits above the people who work for them — and you can also blame them for a practice that drives away today’s top talent.
Restrictive, binding non-compete agreements are especially problematic in an economy that increasingly values contingent workers and independent contractors. Eighty-three percent of executives say they are looking to increase the use of such workers in the coming years. Employees themselves also find the life of the contingent worker increasingly attractive: according to Sarah Horowitz, founder and executive director of Freelancers Union, “Freelancers, independent contractors and temp workers are on their way to making up the majority of the U.S. labor force. They number 42 million, or one-third of all workers in the nation. That figure is expected to rise to 40 percent — some 60 million people — by the end of the decade.”
I don’t mean to suggest that businesses will be hammering contingent or freelance workers with non-compete agreements; rather, I mean to illustrate how dinosauric the non-compete agreement becomes in this new economy of flexible workers. More and more workers want to be self-employed. They don’t want to stay at the same company forever. The workforce wants to bounce around, have plenty of experiences, and balance work and life on their own terms. Why are they going to want to work for your company, when you make them sign a contract that prevents them from doing just that?
I understand that many businesses need to protect their intellectual property and trade secrets. Fine. That’s understandable. But maybe, rather than saddling employees with ridiculous non-compete agreements — or, worse, driving talent away before it even walks in the door — companies should all be looking at non-disclosure agreements (NDAs). NDAs offer more flexibility than non-compete clauses: companies can protect valuable information without exiling former employees from an entire industry.