MEDIA RELEASE: Court case calls into question legality of non-compete agreements for low-wage workers

Binding low-wage workers with non-compete agreements harms competition, wages, new brief finds

RALEIGH (May 25, 2017) — In a win for low-wage workers bound by non-compete agreements, today the North Carolina Justice Center announced a court settlement with the housecleaning company Custom Maid, LLC, on behalf of 10 of the company’s frontline former employees. The settlement will allow former Custom Maid employees to start their own housecleaning businesses.

A non-compete agreement, or a covenant not to compete, is a signed contract between employer and employee that limits the ability of the employee to work for a competitor or start their own competing business for a specified amount of time. Custom Maid, a Chapel Hill-based cleaning service, required its cleaning employees to sign this kind of agreement, barring them from leaving the company to start their own businesses for an 18 month period. When several of them sought to do so, the company sued them.

“I was very afraid,” said Julia (who asked for her real name to be withheld), one of the Custom Maid employees. “I haven’t had normal work since.”

Not only did the non-compete agreement mean Julia could not work on her own cleaning houses, but she was abruptly fired from the work she did find with another cleaning service when the owner learned about the litigation.

“It is not just. I didn’t even know what I was signing,” Julia said about the non-compete agreement. “I’d like to tell her [the company owner] to her face about the harm she has caused me.”

The Justice Center defended Julia and nine of her co-workers in Orange County Superior Court on the grounds that non-compete agreements for low-wage industries violate North Carolina public policy. Specifically, Justice Center attorneys argued that unskilled workers suffer undue hardship when their ability to seek better or different employment is restricted by a non-compete agreement. In a win for Julia and other employees, Custom Maid agreed to settle the case and withdrew its efforts to enforce the non-compete agreement.

The settlement also requires the company to strike the non-compete agreement from its contracts with existing and future employees, freeing those workers to start their own cleaning businesses. Additionally, Custom Maid agreed to pay several of the former employees back wages, and to pay attorneys’ fees to the Justice Center.

”Low wage workers have a hard enough time making ends meet,” said Carol Brooke, a senior staff attorney with the Justice Center who represented the employees. “They should be able to leave a job without worrying that they will be sued for working in the industry where they have experience.”

Despite this victory for former Custom Maid employees, the use of non-compete agreements in similar low-wage industries is widespread and growing, according to a new policy brief released by the Justice Center this morning. The report finds:

• Economists have estimated that as many as one 1 out of 7 every workers (about 15 percent) who lack a college degree or earn less than $40,0000 per year are bound by a non-compete agreement.
• A particularly egregious example of non-compete agreements in low-wage industries include those used by Jimmy Johns, which required its sandwich preparers to sign agreements that prohibited them from working for a competing sandwich shop within three miles of any Jimmy Johns for up to three years.
• Courts have recognized historically that non-compete agreements may address legitimate business interests when they protect trade secrets and proprietary customer accounts in high-wage industries like technology or for key technical positions in manufacturing. But courts have also recognized that similar agreements in low-wage sectors present different challenges to employees in low-skill positions in low-wage industries, especially when workers have little bargaining power with their employers. They tend to rule against enforcing those contracts that do not serve legitimate business interests or place an unreasonable burden on employees.

Most non-compete agreements in low-wage industries could not and should not be considered reasonable, the report finds. Given the absence of true trade secrets or proprietary knowledge in these industries, these agreements do not serve legitimate business interests and cannot be implemented without causing unreasonable harm to employees who are unduly hindered in their freedom to start a new business or negotiate a wage that works for them.

“There are no trade secrets to protect in sandwich preparation or proprietary expertise to safeguard in housecleaning,” said Allan Freyer, Director of the Justice Center’s Workers’ Rights Project and co-author of the report. “Non-compete agreements in low-wage industries only hamper the freedom of business to recruit the best talent, workers to start their own business, and customers to choose the services they want. North Carolina should join North Dakota in refusing to enforce non-compete agreements for low-wage workers.”

Read the complete report at this link: https://www.ncjustice.org/?q=workers-rights/nc-justice-brief-keeping-secr…

FOR MORE INFORMATION, CONTACT Allan Freyer, allan@ncjustice.org, 919.856.2151; Julia Hawes, julia@ncjustice.org, 919.863.2406.