Ban Corporations from Opting Out of Worker Protections

Corporations are using employment contracts to force workers to give up their workplace rights. Banning this practice will improve economic security for workers and communities.

Labor Protections Build Worker Power

During the 20th century, workers organizing for good jobs won legal protections that created basic standards in the workplace, such as minimum wage, overtime, and protection against discrimination.

These laws are key in building worker power, supporting communities, and holding corporations accountable. However, corporations are now using employment contracts to force workers to give up these protections.

‘Take It or Leave It’ Contracts

Corporations are forcing employees to sign away their rights by offering “take it or leave it” contracts that include clauses exempting employees from basic labor protections. Known as coercive waivers, these provisions include:

Forced arbitration agreements: Provisions that waive a person’s right to a public trial. Instead, workers must argue their claim in arbitration—like a private court—where there is no jury and the judge is paid by the employer. Workers win less frequently and receive lower awards when forced into private arbitration. Forced arbitration agreements often include class and collective action waivers that require workers to file claims individually and not collectively with coworkers.

Noncompete agreements: Clauses that prevent workers from working for “competitor” companies during or after their current employment. These contracts typically restrict workers through time, industry, and/or geography, often making it impossible for someone to leave for a better job.

Non-disclosure agreements: Provision that prevents workers from discussing any workplace issues they experienced during their employment, including wage theft, discrimination, and harassment. Workers could be sued by the company if they talk about the problems there, which lets employers get away with bad behavior.

Training Repayment Agreement Provisions (TRAP): Clauses that require an employee to work for an employer for a specific amount of time after being trained for a job. If the employee leaves before the period listed in the contract, they need to pay back the employer for the training they received, even if minimal on-the-job or orientation-type training. Like noncompetes, TRAPs deter workers from leaving for a better job.

Independent contractor waivers: Contracts that label a worker an independent contractor when they should be considered an employee, thereby excluding them from nearly all labor and employment protections. You can learn more about NELP’s work on rights for workers who are misclassified as independent contractors here.

Corporate Power Must Be Reined In

NELP supports initiatives and policies that end or limit the legal loopholes that corporations are using to opt out of worker protections, including:

Shoring up public enforcement: Public agencies, including the U.S. Department of Labor and state labor agencies, can enforce worker protections regardless of loopholes found in employment contracts. Through our strategic enforcement partnership programs, we help agencies build relationships with workers organizing to hold their employers accountable.

Supporting legislation that bans or limits the use of coercive waivers: We support legislation at all levels of government that bans or limits the use of coercive waivers. This includes the Forced Arbitration Injustice Repeal (FAIR Act), which would ban the use of forced arbitration in employment and civil rights disputes. We also support the Workforce Mobility Act, which would eliminate noncompetes for most workers.

Supporting PAGA legislation: Short for Private Attorney General’s Act, PAGA laws allow individual employees to file lawsuits on behalf of a state, thereby getting around forced arbitration provisions. The law has been used successfully in California for some time, and a campaign to pass a similar law in New York State is ongoing.

Supporting litigation that challenges the overly broad interpretation of the Federal Arbitration Act: The Federal Arbitration Act was not intended to force workers into private arbitration when their rights are violated. We support litigation arguing that workers should be exempt from laws that allow forced arbitration in contracts.

Supporting anti-trust initiatives: The use of coercive waivers gives low-road employers an advantage within our economic system. We support federal agencies that are working to level the playing field for employers who are trying to do the right thing but cannot compete with low-road corporations.

The Effects of Coercive Waivers

18%

of workers are required to sign a noncompete agreement.

$9.2

billion is stolen from underpaid workers every year when forced arbitration is used to prevent workers from filing lawsuits.

FAQs on Noncompete Agreements

The following information comes from NELP’s Factsheet: FAQs on NonCompete Agreements.

Noncompete provisions are harmful to workers. Originally meant to protect a business’s trade secrets, noncompetes are increasingly being used by companies in low-paying industries to block workers from changing jobs—limiting workers’ economic opportunity and suppressing their incomes. Also, noncompetes are disproportionately harmful to women and people of color and have a history linked to racial injustice.

Link to FAQ

Noncompete agreements are clauses in employment contracts that prevent workers from working for “competitor” companies during or after their current employment. These contracts typically restrict workers through time, industry, and/or geography.

More than 30 million workers—at least 18 percent of the U.S. workforce—are required to sign noncompetes as a condition of accepting a job. These include janitors, fast food franchise workers, and dog walkers. Employers often present noncompetes as a “take it or leave it” contract, forcing workers either to sign it or forego employment.

Noncompetes are only one type of clause that can restrict worker mobility. Other limiting clauses include coworker non-poaching agreements; customer non-solicitation agreements; customer non-dealing agreements; non-disclosure agreements; and non-disparaging clauses. Some even require a worker to be an “independent contractor” and have no workplace rights while still restricting the worker’s ability to make a living. Forced arbitration provisions bar workers from bringing claims for labor violations in state or federal courts and have reduced the amount of labor and employment litigation in courts.

They cover many underpaid workers: Almost 30 percent of noncompetes cover workers who make below $13 per hour.

They are difficult to challenge: Unless a state has restricted them, noncompetes are almost impossible for workers to challenge. And many workers simply don’t have the time, money, or access to legal help to challenge them.

They restrict job mobility: Noncompetes make it more difficult for workers to leave for higher-paying jobs. By limiting where people can work, noncompetes decrease competition between industries and reduce overall wages.

They disproportionately affect women and people of color: Underpaid workers who are most affected by noncompetes are too often women and people of color. Noncompetes decrease entrepreneurship; reduce wage gains; and make it easier for employers to discriminate.

No, noncompetes harm employers and the economy. These clauses reduce the number of available workers, making it harder for businesses to grow. Job mobility helps to stimulate the economy because it encourages innovation when information is shared; entrepreneurship when workers leave their job to start new businesses; and regional industry development because companies can share workers with experience in the field.

No federal ban on noncompete agreements exists. However, on July 5, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy that encourages the Federal Trade Commission to ban or limit the use of noncompetes. In addition, the bipartisan Workforce Mobility Act and Freedom to Compete Act were introduced in 2021 to prevent the enforcement and creation of noncompetes.

There is also a growing movement to ban noncompetes on the state level. State laws that ban noncompetes generally fall into one of three categories: (1) laws to eliminate noncompetes for everyone; (2) laws to eliminate noncompetes for some, based on occupation or income level; and (3) laws to codify stricter requirements in enforcing them. Some examples of states that have passed meaningful bans on noncompetes include California, Connecticut, Illinois, Maine, Maryland, Massachusetts, New Hampshire, Oregon, and Washington.