Biden once again bungles a story about low-wage noncompete agreements

One of Biden’s campaign promises was to curtail the use of noncompete agreements, arguing they help keep wages low because workers find it hard to switch to jobs with higher pay. He recently signed a sweeping executive order that detailed dozens of tasks for federal agencies — including a directive to the Federal Trade Commission to craft a regulation that would “curtail the unfair use of noncompete clauses and other clauses or agreements that may unfairly limit worker mobility.”

 
 

If enacted, this would be the first federal regulation of noncompete agreements — something now handled by the states. Some have questioned whether the FTC even has the authority to take action in this area.

As part of his speech at the signing ceremony, Biden offered two specific examples of onerous noncompete agreements — one involving hamburger restaurants and one involving asphalt pavers — that twice elicited laughter from the audience.

The president’s comments prompted a puzzled reader to ask The Fact Checker: “I’m in business and my experience is only high level executives are subject to a noncompete and it’s moot anyway because noncompetes are almost always unenforceable. Is Biden‘s statement true? Are McDonald burger flippers under a noncompete?”

 

Let’s take a look.

The Facts

During his speech, Biden said that “at least one in three businesses require their workers to sign a noncompete agreement.” He is citing a survey, published in 2019 by the Economic Policy Institute (EPI), of 634 business establishments with 50 or more employees in a variety of industries.

 

The survey found that nearly a third, 31.8 percent, of responding establishments said that all employees in their establishment were required to enter into a noncompete agreement, regardless of pay or job duties. Nearly half, 49.4 percent, reported that at least some employees were required to enter into a noncompete agreement.

Interestingly, more than a quarter — 29 percent — of responding establishments where the average wage is less than $13 an hour used noncompetes for all their workers.

 

Companies argue that noncompetes are necessary to protect trade secrets and investments in training. But increasingly, states have sought to limit their use with low-wage workers.

On paper, three states — California, North Dakota and Oklahoma — ban noncompete agreements, and nearly a dozen prohibit them for use with low-wage employees. Earlier this year, Oregon added additional limits on noncompetes. Other states, such as New York, rely on the courts to sort out whether noncompete agreements can be enforced.

 

But the EPI study found that businesses reported having noncompete contracts even in states, such as California, where they are supposedly banned. “Even though these agreements would not stand up if ever challenged in court in California, businesses still can use them to pressure employees into not going to work for competitors,” the study noted, saying many employees do not want to undertake the expense of litigation.

 

This brings us to Biden’s specific examples. Let’s start with the hamburger business.

The way Biden framed it, a worker at Burger King could not work at McDonald’s because of noncompete contracts. He asked: “Is there a trade secret about what’s inside that patty?”

That’s simply wrong. Burger restaurants do not have noncompete contracts that prevent hourly workers from going to a competitor.

 

The issue, a few years ago, was that McDonald’s (and some other fast-food companies) prevented employees working at a store from moving to another franchise within the company. These are known as “no poach” contracts. But after the practice was exposed, the firms came under pressure from Washington state’s attorney general and agreed to end such contracts in 2018. The fast-food chains included in the agreement were Arby’s, Auntie Anne’s, Buffalo Wild Wings, Carl’s Jr., Cinnabon, Jimmy John’s and McDonald’s.

 

Biden should know this. He made a similar statement while campaigning in 2020, and both FactCheck.org and PolitiFact said his claim was false.

A White House official said that Biden was thinking of the settlement between Washington state and fast-food restaurants when he related the McDonald’s anecdote. The official said the fact that the companies stopped only in response to a state attorney general’s threat of a lawsuit underscores the need for clear rules from the FTC.

 

Biden would have been on more solid ground if he had cited the case of Jimmy John’s, which sells sandwiches, not burgers. Before 2016, Jimmy John’s forced employees to sign an agreement that for two years prevented them from working at any other business earning more than 10 percent of its revenue from selling “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” within two miles (later three miles) of any Jimmy John’s store in the United States. The company ended the practice after being sued by Illinois.

 

This brings us to the president’s asphalt example. Biden said someone laying asphalt in Arkansas could be prevented from doing the same job in west Texas. We sought out experts in the asphalt business and in noncompete contracts in Texas and Arkansas and received mostly puzzlement and uncertainty.

J. Richard Willis, vice president for engineering, research and technology at the National Asphalt Pavement Association, said NAPA staffers are unaware of any companies imposing such contracts. “We have members all over the country, including companies headquartered in heavily unionized states, which would certainly not follow this practice,” he said. “We don’t think we can reliably say that it’s never done, but we feel certain that it is not a widespread practice.”

 

Robert Wood, a Dallas trial lawyer and expert on Texas noncompete agreements, also said the tale seemed to be a stretch. “The joke about a machine worker being sued on a noncompete is amusing because, in the real world, it almost never happens,” he said. “With few exceptions, noncompete lawsuits are filed to protect trade secrets and client relationships, not to arbitrarily prevent employees from working for competitors.”

 

Academic experts in noncompete contracts were less dubious.

Alexander Colvin, dean at Cornell University’s ILR (Industrial and Labor Relations) School and a co-author of the EPI report, said he was not familiar with the specific example, “but it would not surprise me at all. One of the biggest problems in this area has been overly broadly defined noncompete clauses that cover large geographic areas. There are clauses that apply beyond a single state and that wouldn’t be an automatic bar to enforceability in the courts.”

 

In the EPI survey, of the 65 construction firms that replied, 30.7 percent said all employees were subject to noncompete agreements. “With the widespread use of noncompetes we found in construction, Biden’s example seems quite plausible to me,” Colvin said.

 

Evan Starr, an assistant professor at the Robert H. Smith School of Business at the University of Maryland, also said the asphalt example did not seem surprising: “Certainly noncompete clauses can and do include geographic restrictions broader than the state.”

The White House official did not provide a specific example to back up Biden’s statement but noted that the EPI study found noncompete agreements remain prevalent in a host of blue-collar jobs.

The Pinocchio Test

Once again, Biden got the hamburger anecdote wrong. That did not bode well for his asphalt tale. We were thinking it was another example of what we have termed a “Biden original,” but some experts on noncompete contracts said it was within the realm of possibility. Still, the White House should be able to cite a specific example of this practice if the president is going to mention it at a public event.

 

Contrary to what our reader assumed, there is plenty of evidence that noncompete agreements have been applied to low-wage jobs — and it is enough of a problem that some states have sought to rein in the practice. Biden was attempting to highlight this problem with the examples he raised.

But he needs to be sure the examples are airtight. He earns Three Pinocchios.

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