The Hidden Reason Why Your Pay Is Stuck in Neutral
Companies often work together to keep employee salaries low—and force workers to sign agreements that scam them out of their right to earn more money elsewhere.
Photo by Getty Images / Westend61
This article originally appeared on VICE US.
Of all the reasons why your salary isn't higher, one of the most insidious is something you have little control over: written agreements that employers force workers to sign that either directly prevent them from working for the competition after they leave or that keep former employees from recruiting star workers to their new business. Sometimes companies even agree among themselves not to hire each other’s employees.
Your career could be stalled by these agreements even if you never signed one. The most recent example came to light in July when fast food chains, including Auntie Anne’s and Cinnabon, agreed to stop enforcing anti-poaching agreements that prevent workers from moving to another franchise within the same chain.
The practice has been common place for decades. Apple founder Steve Jobs famously enforced anti-poaching agreements with rivals Google and Intel. It wasn’t until 2015 that the tech giants settled a civil lawsuit alleging that they conspired to reduce competition by preventing employees from moving from one company to the other.
That hasn’t stopped companies from continuing to pressure workers into signing them. When I left the former Time Inc. (RIP) in 2016, I declined to sign a severance agreement that included the following clause:
“Non solicit. You agree that through the Separation Date and during the Severance Period you will not, directly or indirectly, employ or solicit the employment of, and shall not assist, induce, cause or encourage any other person or entity to employ or solicit the employment of, any employee of the Company.”
Non-compete agreements keep your salary low
Not being able to move freely from one company to another doesn’t just stifle your professional development. It lowers your earning potential. “If you work in a state that enforces these, then you have lower wages,” says Evan Starr, a professor at the University of Maryland’s business school who has studied the economic impact of non-compete agreements. In a 2017 working paper, Starr and his co-authors found that over the course of an eight-year period, high-tech workers in states that enforce non-compete agreements earned an average of five percent less and had eight percent fewer jobs than those in states that don’t enforce them.
Approximately one in five workers are bound by non-compete agreements whether they realize it or not, Starr’s research found. Amazon used to make even temporary workers in its warehouses sign non-compete agreements that kept them from working for a competitor for 18 months after their employment—even if they got laid off. The online giant rescinded the policy a day after the Verge reported on it in 2015.
While the stipulations are most common in the fields of engineering, finance and tech, they can pop up anywhere. Burger King, Dunkin' Donuts, and Popeyes are among eight fast food chains currently being investigated for non-poaching agreements by attorneys general in 10 states plus the District of Columbia. "All you're doing there is holding people back; you're driving down wages and benefits and decreasing opportunity," Pennsylvania District Attorney Josh Shapiro told NPR. He estimated that four out of five fast food chains have such agreements.
“Most workers don’t even know such agreements exist,” said New Jersey Senator Cory Booker, when he and Massachusetts Senator Elizabeth Warren introduced a bill in February to ban such agreements nationwide. “Our bill would crack down on this exploitative practice by banning companies from using 'no poach' agreements in contracts and franchise agreements.”
Perhaps not coincidentally, wages in the U.S. have stagnated for years. While hourly wages increased 2.7 percent in June compared to a year earlier, the current 2.9 percent inflation rate completely wipes out those gains. This is not a recent phenomenon either: Since the early 1970s, inflation-adjusted wages have increased just 0.2 percent a year on average, as Harvard Business Review has pointed out.
How to fight back against shady employment agreements
There are steps you can take to avoid agreeing to or being indirectly held back by one of these agreements. The first thing is to ask for a copy of the full employment agreement before you are asked to make a decision. “Ensure the company has provided all the relevant job information upfront,” Starr says. Be sure to ask about both non-compete and non-solicitation agreements.
Non-solicitation agreements are easier to get around because it’s hard to determine if you were actually solicited by a competitor or if you applied on your own. So if a coworker moves to another company and you’d like to work there, go ahead and submit your resume on their online application form. That way there is a record that you made the first move.
If you signed a non-compete agreement, know that often these are not enforced. California has mostly banned them, while Massachusetts, Oregon, and Utah have limited their scope. Hawaii bans them for tech jobs, while New Mexico voids them in the health care field. They can also be voided if a court finds them unreasonable, meaning that they are too broad in their scope. To find out how strictly they are enforced in your state, ask an employment attorney or check online resources.
If you're not bound by an enforceable non-compete agreement, don't be afraid to be proactive about applying for a job where someone who recently left your current employer works. They may be dying to hire you but can’t make the first move because they signed a non-solicitation agreement. If you get the job, you’ll almost certainly get rewarded with a fat pay bump.