Treasury Recommends Reform to Non-Compete Agreements (Part I)

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Non-Competition and Non-Compete Attorney

Non-compete agreements recently became the subject of a study done by the US Department of Treasury.  You might have been subjected to these agreements if you were offered employment at a laboratory, technology or a manufacturing company, among others.  The goal of these agreements originally was to promote innovation by not allowing employees to disclose secrets to a competitor and spill the beans on how that company operates and the formula for whatever ground-breaking product it was making. But the agreements have many negative consequences, and the researchers in this study concluded that they may be more harmful to employees than originally anticipated, calling for lawmakers to put restrictions on them.  For the details of the reform, stay tuned to our next post, as we will dive into this further.  For now, let us consider the benefits versus the drawbacks of such agreements.

In addition to promoting innovation by protecting trade secrets, non-compete agreements provide benefits that improve an employee’s life.  Non-compete agreements have been shown to reduce the probability of employees resigning, which gets rewarded through the company not having to provide costly training to employees who do not leave. (result is higher sales) Finally, non-competes help employers with high turnover to attract workers who have a low desire to switch jobs, promoting the employer to be a stable work environment with people staying at their jobs.

However, as the authors point out, non-competes can have some consequences, both intended and unintended.  These agreements have been shown to reduce the wages of employees and labor in some industries by decreasing the opportunity for employees to move from job to job through different employers, discourage workers from re-entering the field if terminated, and relinquishing the training the workers received.  Employers often take advantage of the employees’ lack of understanding of these agreements.  In California, for example, the law does not allow for the enforcement of these agreements, yet employers stick them into their contracts.  Anyway, Employers often do not inform new hires about the existence of these agreements, and often do not allow this term to be the subject of negotiations, with only ten percent of workers with these agreements reportedly being able to bargain over this term.

Clearly, there are some nasty side effects to a non-compete agreement.  In our next post, we will consider some recommendations made by the study to reform these agreements.

To discuss your NJ Non-Competition agreement matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.