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The surprising, painful ways companies are using noncompete agreements

There’s a growing movement to restrict, or even ban, employee noncompete agreements. Nearly 40% of all American workers have, at some point, signed such contracts, which critics say do something decidedly un-American: stifle competition. The NewsHour reveals that even lampshade makers and licensed foster care parents are asked to sign them. Special correspondent Duarte Geraldino reports.

Read the Full Transcript

  • JUDY WOODRUFF:

    But, first: how some American companies are requiring workers to sign contracts that limit career mobility.

    While they are not well-known, companies can use these contracts to prevent an employee from working for a competitor. Lawmakers are worried that it's gone too far and they are trying to weaken or even outright ban them. In fact, the Massachusetts State Senate today debated its own bill to limit them.

    But many say these agreements are not likely to go away.

    Special correspondent Duarte Geraldino has the story for our series Making Sense, which airs Thursdays.

  • DUARTE GERALDINO, Special Correspondent:

    In a small industrial park in Fort Lauderdale, Florida, the Allure lampshade factory.

  • MARK VAN WETTERING, Owner, Allure Shades Inc.:

    We take pride in the fact that everything is made in America, the metal, the frame, the lining, the trimming. And our stickers are made in the USA too.

    (LAUGHTER)

  • DUARTE GERALDINO:

    Everything is made in the USA.

  • MARK VAN WETTERING:

    Exactly.

  • DUARTE GERALDINO:

    Mark Van Wettering has been making lampshades since he was a teenager, opened his own business in 2007, just before the start of the great recession.

  • MARK VAN WETTERING:

    I had to do a bankruptcy, a Chapter 13, to get my stuff in order, and lost my home, but I held onto this business. And I bet everything on myself and on the company, that we would succeed.

  • DUARTE GERALDINO:

    To boost his odds, he thought about having his employees sign a non-compete contract, which would have prevented them from quitting to go work at any one of his three local rivals.

  • MARK VAN WETTERING:

    I saw a lawyer. I had it drawn up. I couldn't find it in me to bring it to the table and have my employees sign it. If someone feels that they have a better opportunity somewhere else, I'm all for it.

  • DUARTE GERALDINO:

    But nearly 40 percent of all American workers have at some point signed a non-compete contract, including one out of every six workers earning less than $40,000 a year — some of them much less, like Genoveva Ochoa, a Central American immigrant who speaks practically no English, and yet knows the phrase non-compete.

    Ochoa came to the U.S. five years ago and almost immediately went to work at Allure.

  • GENOVEVA OCHOA, Allure Shades Inc. (through interpreter):

    I learned everything here.

  • DUARTE GERALDINO:

    But two years ago, she says her husband convinced her to join him at nearby Canterbury Lampshades, which offered her 50 cents more an hour, but also made her sign a non-compete contract.

  • GENOVEVA OCHOA (through interpreter):

    They called me into the office and said, here are the papers you need to sign, and if you don't sign, you don't get the job.

  • DUARTE GERALDINO:

    She signed. But she says Canterbury failed to give her full-time hours, so she quit and returned to Allure. Canterbury has since sued both Ochoa and Van Wettering for violating the non-compete agreement.

  • GENOVEVA OCHOA (through interpreter):

    This is so unfair. Forcing people to sign these papers, it's like cutting off our hands, because we can't work anywhere else.

  • DUARTE GERALDINO:

    Ochoa offered to resign from Allure. Van Wettering wouldn't hear of it. Instead, he filed a countersuit.

    For the record, Canterbury declined our interview request.

  • MARK VAN WETTERING:

    First of all, we hired her originally. We taught her the skills that she has. I can't believe that there will be a judge somewhere in the state of Florida who would agree with my competitor that a person making $9 or less…

  • DUARTE GERALDINO:

    Nine dollars or less?

  • MARK VAN WETTERING:

    Yes, assembling lampshades is now subject to a non-compete clause.

  • DUARTE GERALDINO:

    Believe it, says his lawyer, Jonathan Pollard.

  • JONATHAN POLLARD, Competition Lawyer:

    This degree of absurdity is unique to Florida.

  • DUARTE GERALDINO:

    If there's a judge anywhere who might enforce Canterbury's contract, says Pollard, that judge is probably in Florida, one of the more pro-business states.

  • JONATHAN POLLARD:

    Non-compete law is a creature of state law. On one end of the spectrum, you have California, where employee non-compete agreements are unenforceable. And on another end of the spectrum, you have Florida, where they are highly enforceable.

  • DUARTE GERALDINO:

    Of course, even in Florida, most non-compete contracts are reserved for higher-level employees who have access to trade secrets.

  • RUSSELL BECK, Competition Lawyer:

    Recipes for cookies, profit margins, customer lists.

  • DUARTE GERALDINO:

    And as attorney Russell Beck, who writes an influential blog, points out:

  • RUSSELL BECK:

    Billions of dollars of trade secrets are stolen on an annual basis, and there needs to be some mechanism for protecting them.

  • DUARTE GERALDINO:

    Several studies suggest theft of trade secrets robs the U.S. economy of some $300 to $500 billion a year. Headlines warn of larcenous employees looking to lift a lot more than paper clips.

    No wonder non-compete contracts have proliferated, popping up in some surprising sectors of American life.

  • OMAR SAID, Foster Parent:

    The way they made it very clear to us from the beginning is that we were volunteer providers. We are not employees of the company.

  • DUARTE GERALDINO:

    And yet, in the paperwork that you signed, you had to sign a non-compete?

  • OMAR SAID:

    We did.

  • DAMARIS SAID, Foster Parent:

    Can you get the drinks, honey?

  • DUARTE GERALDINO:

    Omar and Damaris Said are foster parents, licensed by Florida to care for special-needs children.

  • OMAR SAID:

    They have autism, bipolar, intellectual disability.

  • DAMARIS SAID:

    Some of them have all three. A lot of times, the children who have these behaviors are in institutions. And the state wants to step them down into group homes, but we need people that are willing to open up and do this type of service.

  • DUARTE GERALDINO:

    In 2012, the Saids signed a detailed contract with a private company called LifeShare to take David and Cyrus into their home.

    LifeShare would train and supervise the Saids, and also give them a portion of what the state paid for the boys' care. The Saids agreed to provide a long list of services.

  • OMAR SAID:

    This is not baby-sitting. This is a therapeutic setting. We are constantly taking data, annotating behaviors, looking at trends, graphing that information. We have therapists coming in and out. We have doctors' appointments.

  • DUARTE GERALDINO:

    Cyrus, now 17, had been in an institution.

  • CYRUS:

    Here, it's a lot more better. They care about you. They don't let other people hurt you. But other places, they didn't do that.

  • DUARTE GERALDINO:

    Did they hurt you?

  • CYRUS:

    Yes, sometimes. They let the boys hurt me.

  • DUARTE GERALDINO:

    What did they do?

  • CYRUS:

    Punch me, kick me. One of them tries to break my arm.

  • DAMARIS SAID:

    OK, and so whoever wins, what do we say? Good game, good job.

  • DUARTE GERALDINO:

    This level of foster care can be physically and emotionally challenging.

  • DAMARIS SAID:

    Yeah, I have gotten punched in the face. He's gotten bitten. He's gotten nose broken.

  • OMAR SAID:

    We don't take it personal. This is a challenge that they were born with. It's our job to help them manage it.

  • DUARTE GERALDINO:

    But according to the contract, the response to violent outbursts was to dial 911, then a LifeShare hotline and wait for a call back.

    LifeShare wouldn't comment, but the Saids say the company often told them to lock themselves in their bedroom.

  • OMAR SAID:

    What happens if he gets into glass or into some of the kitchenware, or rips the TV from the wall and injures themselves?

  • DAMARIS SAID:

    So, we were getting hurt. The boys were getting hurt. And we would call the cops, and then the cops would say, if you don't know how to control them, then these boys do not have any business being here in your home.

  • DUARTE GERALDINO:

    Fearing they would lose Cyrus and David, the Saids decided to terminate the contract with LifeShare and deal directly with the state, which was urging a more hands-on approach. They say LifeShare immediately invoked the non-compete clause, withholding their monthly stipend, and demanding they either give up the boys, or pay $20,000 to keep them.

  • DAMARIS SAID:

    I love every single one of them. And we feel that these kids do not deserve to have a price tag.

  • OMAR SAID:

    We just wanted to walk away and continue doing the work that we feel we have been called to do. LifeShare wouldn't have that.

  • DUARTE GERALDINO:

    Jonathan Pollard represents the Saids in what has now turned into complex litigation.

  • JONATHAN POLLARD:

    LifeShare is saying: We have a non-compete agreement. Those children are basically our property.

  • DUARTE GERALDINO:

    How is that possible?

  • JONATHAN POLLARD:

    There is nothing to stop anyone from putting together a non-compete agreement for anything.

  • DUARTE GERALDINO:

    In part, that's why a national movement against non-competes is picking up steam. The White House and U.S. Treasury are investigating, as nine states look to restrict their use and five want to ban them altogether.

    Non-compete contracts are increasingly unenforceable, but employers keep asking workers to sign these contracts. For example, in California, workers sign non-compete contracts at a higher rate than most Americans, and yet in that state, these contracts carry almost no legal weight.

    So what then is their purpose?

  • JONATHAN POLLARD:

    Those agreements are just restricting competition and employee mobility, which means, you can pay your folks less money and have a better bottom line at the end of the day. That's what it's about. It's greed.

  • RUSSELL BECK:

    There are definitely companies that use these agreements as a retention tool. That's not what they are designed for, and companies shouldn't be doing that.

  • DUARTE GERALDINO:

    But, to be clear, you believe that there is a place in the future of the American work force for these non-competes?

  • RUSSELL BECK:

    Absolutely. They just can't be abused.

  • DUARTE GERALDINO:

    That's the struggle for policy-makers. Non-competes can promote innovation and entrepreneurship, but they also have the potential to act like economic nooses around the necks of workers, and even competing businesses.

  • MARK VAN WETTERING:

    I want to compete, but I want to compete on a fair playing field.

  • DUARTE GERALDINO:

    In Fort Lauderdale, Duarte Geraldino for "PBS NewsHour."