Elevating Georgia’s Working Class by Restricting Noncompete Agreements
The most fundamental idea of a market economy is that competition benefits everyone. However, by allowing many noncompetes to be enforceable, Georgia stifles the very market principles it exalts with its ‘right-to-work’ law. In reality, Georgia laws do not protect workers or the free market. They protect corporations.
On a macroeconomic scale, many studies have found that noncompetes are bad for both innovation and employment. However, there is also evidence to contradict these conclusions. What most can agree on, however, is that noncompetes are bad for low-wage workers.
A key example of how noncompetes harm the working class is their depressive effect on hourly wages. A study done on Oregon’s 2008 ban on noncompetes for hourly-paid workers proves this effect, finding that after the ban, hourly wages increased by an average of 2–3%. Not only this, but qualitative evidence has found that noncompetes often blindside low-wage workers, with employers forcing them to sign the agreements after they accept a job offer or resign from their previous position.
These situations allude to the larger exploitative nature of noncompetes: employers often use them to intimidate or pressure workers who cannot afford resources that level the playing field, such as a lawyer. Intimidation of this type has been referenced in interviews, as well as through a variety of studies, dating from 2002 to 2020, which find that noncompetes have the capacity to reduce worker mobility regardless of whether they are unenforceable or not (in other words, the contracts can influence workers solely due to the intimidation factor they create).
All of this research makes it clear that noncompetes often exploit and harm the working class. This is equally true in Georgia. Currently, noncompetes in the state are governed by the Georgia Restrictive Covenants Act (RCA). This Act voids many noncompetes as unenforceable; however, it does so with specific demarcations, such as allowing noncompetes for ‘key employees.’ Given the 150-word definition of this term under Georgia state law, which ends by qualifying anyone with ‘specialized abilities’ as a key employee, it is easy to see how a boss or supervisor may be able to intimidate an employee into believing a contract is enforceable; they misconstrue complex legal terms to an employee who cannot afford a lawyer, forcing the employee to abide by an unlawful agreement based on nothing more than fear. As noted previously, it is for this reason precisely that unenforceable noncompetes still affect worker mobility. And because these contracts still affect worker mobility, they have depressive effects on wages, and they still may harm innovation and employment. It is therefore imperative that Georgia reforms its RCA to fight for workers.
Those who argue in favor of noncompetes contend that their benefits to employers outweigh their negative effects on workers. More specifically, many argue that noncompetes (i) protect an employer’s training investment, (ii) protect against the transfer of proprietary information to a competitor, and (iii) prevent firms from having to recruit and train substitute or replacement employees. As for point (ii), employers have many other means available to achieve this goal, such as non-disclosure and non-solicitation agreements. To address points (i) and (iii), it is true that an employer incurs costs when an employee leaves their company. However, the solution to these costs should be incentivization, not deterrence. In other words, employers should make their employees want to stay instead of preventing them from leaving. A ban on noncompetes for low-wage workers would force this incentivization, improving the situation of workers across Georgia.
Since 2019, nine states and Washington, D.C., have placed income restrictions on noncompetes. How each state determines the threshold of this restriction varies: some use a singular value that is repeatedly adjusted for inflation, while others use the state’s average wage, the state’s minimum wage, or the federal poverty line as markers on which to base their threshold. Regardless, all of these reforms have one thing in common: noncompetes are unenforceable for employees who make below the designated threshold.
Georgia must implement similar reform to its RCA, regardless of the exact value of the wage threshold. Such reform would allow current carve-outs under which noncompetes are enforceable to continue to exist if the affected employees make over the threshold, allowing Georgia to continue to protect certain employer interests. At the same time, the wage threshold would protect Georgia’s most vulnerable workers from the effects of depressed wages. Finally, because the threshold is much more digestible than the current policy, it would lessen the effects of employer intimidation on worker mobility. State-level noncompete reform is not only the right thing to do, it is a necessity. Georgia’s economy is built of its workers and by its workers–it’s time it works for them.
Liam Martin is a first-year at the University of Georgia studying political science and economics. He is a member of our labor and economic development group.