Keeping Secrets? How non-compete agreements for low-wage workers hurt business hiring and hold down wages

Who knew that preparing sandwiches for $8 an hour involves trade secrets, or that cleaning apartments for even less requires proprietary knowledge about key customer accounts? Yet such is the reality for a growing segment of North Carolina’s economy, where employers in low-wage, low-skill industries are increasingly asking their employees to sign non-compete agreements as a condition of their hiring or continued employment—a trend that warps the free market and reduces businesses’ freedom to hire, customers’ freedom to shop, and workers’ freedom to negotiate a higher wage.

A non-compete agreement, or a covenant not to compete, is a signed contract between employer and employee that limits the ability of the employee to work for a competitor or start their own competing business for a specified amount of time (typically less than five years). Historically common in high-skill industries like software, or for certain positions requiring significant proprietary technical expertise like design engineers, non-compete agreements are now becoming more common across the economy. Only this time it’s in traditionally low-wage industries like housecleaning, food service, and home maintenance and for mid-level, non-technical positions in manufacturing that do not require significant outside education or training.

Although non-compete agreements may have a role to play in protecting trade secrets for technical or knowledge-economy industries and certain key, high-skill positions, there is clearly little public benefit for requiring frontline workers in low-wage industries to sign them, or for suing them to enforce their compliance. Increasingly, courts are siding against the employers in such cases and state governments are seeking to limit enforcement against low-wage workers. North Carolina should follow suit and enact policy changes reining in this abusive practice that hurts competing businesses, workers, and the overall economy.