The Latest Way Employers Are Taking Advantage of Employees

An Amazon employee sorts products - Source: Philippe Merle/AFP/Getty Images

Philippe Merle/AFP/Getty Images

Competition — it’s an integral component to the free market system, and the engine that drives the wheels of business dynamism and economic growth. Without competition, it’s hard to say what the world would look like today. We may never have gone to the moon, developed iPhones or iPads, and could still all be driving Soviet-era Ladas.

Of course, businesses can benefit from a lack of competition. Where else can consumers turn if there is only one player in the market? In that case, consumers will more or less be forced to pay higher prices and put up with bad service since they can’t take their money elsewhere. Simply put, it’s in the best interest of businesses to curb competition when given the chance. That includes competition for those that could poach their own assets — most notably, labor.

Over the past several years, there has been an uptick in an employee provision that is typically only reserved for the very highly skilled, or those in possession of proprietary secrets: the non-compete agreement. You may remember hearing recent stories about middle or low-level workers being required to sign non-competes — Jimmy John’s and Amazon come to mind. But the employees being forced to sign them were low-wage workers with no access to proprietary or inside information about their firms. Instead, the practice in those cases seems completely unnecessary.

That trend is happening across an array of industries, and being instituted in a huge number of companies.

“We’re seeing companies piling on these restrictions in CEO agreements because they have valuable information to protect, and writing them into contracts usually doesn’t cost anything,” said Norman Bishara, associate professor of business law at the University of Michigan. Bishara put together a study with researchers from Vanderbilt and New Mexico State Universities that found 80% of employment contracts from 500 different publicly-traded companies contained non-compete agreements.

Clearly, it’s catching on. But why?

The idea is pretty simple: restrict the mobility of workers, and reap the benefits in the form of lessened personnel costs, and lower wage expenses. Really, it’s just a simple way of cutting down on costs for companies like Jimmy John’s, which only sees an expense of a sheet of printer paper, whereas the employee may find themselves in a very tight situation if things don’t work out.

For employers, it’s a win-win. For workers, not so much.

In fact, many critics of non-compete agreements feel that the economy as a whole suffers as a result of non-compete agreements, not merely individual workers. Since workers have a hard time moving on to other jobs, likely with bigger and better compensation packages, the whole economy feels the pain in the form of lost productivity or wasted potential. These critics, according to MarketWatch, add that businesses can protect themselves in other ways, but use non-disclosure or non-solicitation agreements instead.

They’re choosing non-competes, and probably for the reasons stated above. After all, it’s not like a Jimmy John’s employee is going to take a sandwich recipe, quit, and sell it to Subway.

What the non-compete agreement is quickly becoming is yet another barrier for workers to overcome in order to grow professionally. By dissuading workers from taking their skill set to the labor market, in an effort to increase their value and earnings, businesses are able to artificially deflate employees’ worth, all the while keeping them working. In a way, it’s similar to price-rigging, or wage-fixing.

One way we’ve seen that play out in modern times was when several Silicon Valley-based tech companies colluded to keep wages low. Apple, Google, Microsoft, and others all conspired to keep wages low, PandoDaily reports, as recently as last year. Basically, these companies promised not to poach each other’s employees, or offer high salaries for talent. Since they are all drawing from the same labor pool, this artificially kept wages low, as it basically took the competitive aspect out of the labor market.

That’s similar to what these non-compete agreements do, although instituted in a more complex fashion. But it achieves the same results: fewer turnover costs, and lower wages/personnel costs. In that sense, it’s no wonder why companies have started to add non-compete forms to their standard paperwork requirements for new hires. Businesses have everything to gain, and nothing to lose, from pushing for it.

Follow Sam on Twitter @Sliceofginger

More from Business Cheat Sheet: