Noncompete agreements are pervasive and un-American

I can’t think of anything more un-American than my employer controlling where I can work and live.

But that’s the oppressive reality for almost one-fifth of American workers today, who labor under noncompete agreements that have become increasingly intrusive and unjustifiable.

Fortunately, workers could soon be breaking free from these shackles in New York, where the Legislature recently passed a bill (A01278B) banning them, and across America, with the U.S. Federal Trade Commission proposing a rule to do the same.

This issue is personal for me. I am the co-founder and CEO of Small Door Inc., a company that operates 10 veterinary hospitals, including five in New York State, and employs 220 workers. We have never asked any of our medical professionals to sign a noncompete clause, though our competitors, some of whom run more than a 1,000 clinics, do so regularly.

This hurts our business, since it prevents us from hiring talented veterinarians who are locked into jobs they may otherwise want to leave. But it is far worse for the vets themselves, who don’t have the freedom to pursue better wages and working conditions.

Many are familiar with the contours of noncompetes, which are legal agreements or clauses in a contract specifying that an employee can’t work for an employer’s competitor for a period after leaving their job. But it might surprise you just how pervasive they have become.

These aren’t just golden handcuffs placed on high-flying executives, bankers, tech workers and others with big compensation packages. Noncompete clauses increasingly are inserted into the employment contracts of hairdressers, fast-food workers, baristas, dog walkers, janitors, security guards and millions of others who don’t have the resources or the legal sophistication to challenge them. The clauses are often buried inside long employment contracts and signing them is often required to begin work.

One study by University of Maryland economist Evan Starr estimates that roughly 1 in 7 workers making $40,000 or less sign noncompetes. Another survey from compensation data firm PayScale found that approximately 32% of U.S. companies include the clauses in all of their employment contracts regardless of position or pay.

According to the FTC, noncompetes cost workers some $300 billion a year by limiting competition for workers and depressing wages.

Defenders of noncompetes will tell you the agreements are necessary to keep key employees who are privy to trade secrets or proprietary strategy from taking information with them to competitors. But sensitive information can easily be protected via different agreements tailored specifically for that purpose.

With a few exceptions, noncompetes are better understood as a crude racket. That’s certainly how they work in the veterinary industry.

For example, one large company that operates more than 1,000 veterinary clinics, includes a clause in its employment contracts that says, “departing veterinarians may not work for a competitor within 15 miles of any clinic operated by our Company.” It defines a competitor as anyone who “operates a veterinary clinic, develops veterinary software, sells veterinary insurance, conducts clinical trials of veterinary medications, distributes veterinary data, or builds veterinary facilities.” In other words, it means, ”you have three choices: work for us, move somewhere else or find another career.”

I know a vet who worked for another clinic in Manhattan with a noncompete that forbade her from working within 10 miles of one of their facilities. Considering Manhattan is 13 miles long by two miles wide, that meant she essentially couldn’t work anywhere in the borough. Left with few options, she ended up moving her family and her work to New Jersey.

This is outrageous and it is way too common throughout the American economy.

For all but a small minority of American workers, noncompetes have nothing to do with protecting an employer’s proprietary information. It’s about protecting their turf — not by beating their competition fairly but by tilting the playing field in their favor.

In New York, the noncompete ban that passed the Legislature is awaiting the signature of Gov. Hochul. I hope she signs it. After she does, the FTC should end the practice nationally once and for all.

With courts, legislatures and regulatory agencies all moving to curb noncompetes, at least one major law firm is already advising its business clients to reconsider using them, and to identify the “least restrictive means” to protect specific business interests.

It’s good advice. Locking people into jobs they don’t want and blocking them from accepting employment elsewhere is more than unjust. It is un-American.

Guttman is co-founder and CEO of Small Door Inc, a membership-based and technology-powered veterinary care platform that operates veterinary practices in New York City, Boston and Washington.