Title: What Do Noncompete Agreements Mean for Lower-Wage Workers and the
Economy?

Description: Noncompete agreements have historically been applied to
highly skilled workers and executives with access to company secrets and
other proprietary information. But recently these contracts used more
broadly, with as many as 38% of workers saying they've signed one at
least once in their career. GAO's Tom Costa tells us more.

Related GAO Work: GAO-23-103785, Noncompete Agreements: Use is Widespread
to Protect Business' Stated Interests, Restricts Job Mobility, and May
Affect Wages

Released: May 2023

[Music]

[Tom Costa:] Noncompete agreements are prevalent, and these agreements
impact job mobility and may also affect wages, including the wages of
low-income workers.

[Holly Hobbs:] Hi and welcome to GAO's Watchdog Report. Your source for
fact-based, nonpartisan news and information from the U.S. Government
Accountability Office. I'm your host, Holly Hobbs. Noncompete agreements
historically been applied to highly skilled workers and executives to
prevent those with special skills and knowledge from sharing company
secrets and other proprietary information. But recently there have been
concerns that lower-wage workers are increasingly being subjected to
these agreement--sometimes without understanding what they are. Here to
tell us more is GAO's Tom Costa, an expert on employment and worker
protections. Thanks for joining us.

[Tom Costa:] Thanks for having me, Holly. I appreciate it.

[Holly Hobbs:] So Tom, how prevalent are noncompete agreements?

[Tom Costa:] Well, traditionally, these agreements have been used for
executives and employees with access to certain proprietary information.
But employers also use them with hourly- or lower-wage workers. We
conducted a survey of private employers, and the results were pretty
interesting. Almost all of them use the agreements for executives such
as CEOs. A large majority of surveyed employers also said they use the
agreements for hourly workers. The studies we reviewed found that while
workers with higher wages are more likely to have NCA's, 10% of
lower-wage workers also have noncompete agreements.

[Holly Hobbs:] Why do employers like these agreements?

[Tom Costa:] So there's a lot of reasons employers like these
agreements. Employers most often say it's to protect their business
interests, such as trade secrets and client lists. Essentially, they're
trying to ensure their information doesn't find a way into their
competitor's hands. Some employers also use these agreements to keep
workers on board and reduce turnover. But I think why employers use
these agreements is only part of the story. The other part is why
workers sign them. Workers sign them because they want a job. That's
obvious, right? However, employers may wait to tell workers about the
requirement for signing a noncompete until after they've accepted the
job. And some workers don't know what they're signing.

[Holly Hobbs:] Do these lower-level employees really have the access to
secrets that would warrant a noncompete agreement?

[Tom Costa:] Well you know, we spoke to a wide array of experts,
researchers, labor relations organizations, advocacy groups. All of them
said the same thing. Lower-level workers are unlikely to have access to
the sort of information that managers or CEOs would have, and therefore,
they probably shouldn't be asked to sign these agreements. A nursing
assistant who works at a hospital probably doesn't have the hospital's
proprietary information. And a fast food worker probably doesn't know
the secret formula for the company's milkshake.

[Holly Hobbs:] So what's the potential impact of these agreements on
employees and the economy?

[Tom Costa:] So from a worker's perspective, noncompete are designed to
restrict them from leaving their current workplace to work for
competitors or starting a rival business. So that's one impact. But
there are a number of studies we reviewed that indicate wages are
affected as well. For some workers, the agreements may reduce future
wages since they'll have fewer opportunities to look for higher paying
jobs or even negotiate a higher salary with their current employer. So
these workers may experience lower wage growth than workers without
agreements. On the flip side, noncompetes may make employers more
comfortable investing in training. And that can be attractive to some
workers.

{MUSIC}

[Holly Hobbs:] So it sounds like noncompete agreements can be a useful
tool for employers looking to keep company secrets and retain staff. But
for employees--particularly lower-wage workers--these agreements could
limit their salary growth and their ability to change jobs.

So Tom do we have any idea how often noncompete agreements are enforced?

[Tom Costa:] We don't know exactly how often they're enforced. And it
may not be all that often. When employers elect to enforce their
agreements, it's mainly to protect things like their trade secrets and
client lists. But there is some evidence that employers also enforce the
agreements to prevent worker turnover, and that these employers will
enforce these agreements regardless of whether they're executives or
hourly workers. That said, they may not need to enforce the agreements
very often because employers sometimes just have to remind workers that
they have a noncompete agreement to prevent them from leaving. And it
may not matter if the agreement is actually enforceable in their state
because most workers don't even know whether it is or not.

[Holly Hobbs:] And are there protections for employees against these
agreements?

[Tom Costa:] Well, state law governs noncompete agreements and these
laws vary pretty widely. We found that some states generally don't allow
noncompetes, while others vary in their degrees of permissiveness. And
over the last several years, a number of states have updated their laws
governing noncompetes. Some states now require employers to notify
workers about the requirement to sign a noncompete before they accept
the job. Other states are restricting employers from using these
agreements for low-wage workers. And there are also a small number of
states that authorized penalties for noncompete agreements that use
prohibited terms are overbroad.

[Holly Hobbs:] And do we know why states are updating their laws about
noncompete agreements? Is there some kind of concern that triggered
that?

[Tom Costa:] Yeah, no, there's definitely some concern around
noncompetes. I think this is why we were asked to do our review as well.
I think there's particular concern around low-wage workers and we've
seen that there has been a growing number of states that are starting to
insert themselves into this space, as well as the current administration
has some proposed rules around noncompetes.

[Holly Hobbs:] And last question, what's the bottom line of this report?

[Tom Costa:] I guess if I had to summarize this in one sentence, I would
say that noncompete agreements are prevalent and these agreements impact
job mobility, and they also affect wages, including the wages of
low-income workers.

[Holly Hobbs:] That was Tom Costa talking about GAO's recent report of
noncompete agreements. Thanks for your time, Tom.

[Tom Costa:] Thanks for having me Holly. I appreciate it.

[Holly Hobbs:] And thank you for listening to the Watchdog Report. To
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