Newsweek - In a Hot Labor Market, Coercive Contracts Bind Millions to Current Job

Legal director Sandeep Vaheesan addresses the increased harm non-compete clauses are causing to workers and the need for the FTC to ban them.

In a phenomenon dubbed the "Great Resignation," tens of millions of Americans quit their jobs in 2021. The Bureau of Labor Statistics reported that 4.5 million workers, or 3 percent of America's labor force, resigned in November 2021 alone. Many switched fields or started their own businesses. Others, especially workers nearing retirement age, left the labor market entirely due to family obligations, improved finances thanks to federal COVID relief programs or simple exasperation with underpaid or life-threatening toil.

Amid this extraordinary mass exit and mobility, employers in certain industries are scrambling to retain workers and fill vacancies. Workers in low-wage service sectors such as fast food currently possess real power. Employers have offered higher wages and bonuses to keep their current workforce and to attract new workers. Between November 2020 and November 2021, average hourly wages increased 12.3 percent in the leisure and hospitality industry.

Yet some employers have resorted to less salutary methods to retain staff. They have ramped up enforcement of non-compete contract clauses to prevent workers from leaving for rivals offering higher wages and to send a message to their workforce to stay put. As many as 60 million Americans across income levels and occupations may be subject to a non-compete clause.

Non-compete clauses restrict where workers can go and what they can do after they leave their current job. For example, Amazon required warehouse workers, including seasonal workers, to sign exceptionally broad non-compete clauses that prevented them from "engag[ing] in or support[ing] the development, manufacture, marketing, or sale of any product or service that competes or is intended to compete with any product or service sold, offered, or otherwise provided by Amazon (or intended to be sold, offered, or otherwise provided by Amazon in the future) that Employee worked on or supported" for 18 months after leaving Amazon.

With broad and growing political opposition to, and new state-level legal restrictions on, non-compete clauses, employers have started using other contracts that function as non-compete clauses. Some use "liquidated damages" clauses that require employees to pay large amounts of money in the event they leave. Another increasingly common employment contract is the "training repayment agreement" that compels workers to repay large amounts of money for on-the-job training if they leave before a specified time. The trainings themselves are often a sham and merely a pretext for penalizing workers who leave. Both of these tactics can be even more pernicious than conventional non-competes because they restrict all departures, not only departures for "competitive" positions. They may even run afoul of the 13th Amendment's prohibition on involuntary servitude.

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