Noncompete Clauses are Everywhere, Even for Dancers and Hair Stylists

By Julian Mark / The Washington Post

17:19 JST, March 11, 2023

Late last year, Shelbie Brennen was ready for a change.

She had worked as a stylist at Lemon Tree hair salon in Upstate New York for seven years. But at 29 and recently diagnosed with non-Hodgkin’s lymphoma, Brennen wanted to work closer to home in the nearby village of Unadilla. As her own boss, she could more easily care for her two toddlers, so Brennen bought out a small salon in October 2022. She was delighted when a co-worker, Amanda Vinal, agreed to join her.

For once, Brennen said, “we would have something of own that we could create ourselves.”

That excitement was shattered a month later, when they were hit with a lawsuit from Lemon Tree’s parent company, Salon Development, trying to shut them down. The suit alleged they were in violation of their noncompete agreements, which prohibited them from being “associated” with any other salon within a 10-mile radius of their old shop in Sidney for one year after leaving the company.

“We were honestly very shocked,” Brennen told The Washington Post.

Although neither disputes signing the agreement, Brennen said she did not think the company would try to enforce it because other former Lemon Tree stylists had gone into business for themselves. Now, Salon Development’s lawsuit threatens to put them out of business and possibly extract financial damages.

Disputes over noncompetes – clauses in employment contracts that restrict workers from taking jobs at rival companies – are hardly new. What has changed is the fresh focus on the proliferation of noncompete agreements in relatively low-wage work, raising questions over whether they are necessary for jobs that seemingly involve few trade secrets or even specialized training.

Brennen said that she lives below the poverty line and, unable to afford a lawyer, the two are relying on Google searches to prepare their defense.

“We barely get by to pay our bills,” she said. “This has become an extreme hardship in so many ways.”

Salon Development, which oversees more than 40 hair salons in five states, did not respond to a request for comment.

Academics point to a growing body of research that shows such contracts keep wages low and gum up labor markets. A Labor Department study published in June 2022 estimated that 18 percent of Americans, or 1 in 5, are bound by noncompete agreements, but other research suggests it could be closer to 5o percent. Evan Starr, a University of Maryland professor who co-authored the Labor Department study, says these agreements cause labor market “frictions” that can, among other things, suppress pay while imposing costs on firms wanting to hire.

The Federal Trade Commission, urged by President Biden, has proposed a nationwide ban on noncompetes, which it estimates would raise wages by nearly $300 billion a year.

But some experts doubt the proposal is viable, given the intense opposition from business groups such as the Chamber of Commerce, as well as some Republicans in Congress, who contend the FTC lacks the authority. The Chamber has threatened to take the fight to court.

The debate coincides with post-pandemic shifts in the labor market that have left employers struggling to recruit and retain workers, who are increasingly shunning service work and pressing for more flexibility. Unemployment fell to 3.4 percent in January – a rate not seen since 1969 – federal data show, as a staggering 517,000 jobs came online.

The Post spoke to workers in five states – a physician, a residential caretaker, a dental equipment technician, a pair of ballroom dancers and stylists Brennen and Vinal. These stories show not only how much laws governing them vary from state to state, but also the personal and financial toll of trying to break free on a noncompete agreement.

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Seven years ago, Nathaniel Readal moved to Butte, Mont., after finishing his medical residency at Johns Hopkins Hospital. While he could have gone anywhere, he wanted to bring his skills to the small mountain community, where urology specialists are scarce.

Eager to begin his first job, he signed the noncompete agreement for St. James Healthcare, which barred him from working at any other facility within 50 miles for one year if he left the system. Since then, Readal said, that radius has been narrowed to 26 miles, but it still leaves him with few options. What’s more, his salary has remained the same, Readal said. As he sees it, the noncompete agreement has stifled his ability to negotiate for a raise.

“It gives the hospital huge leverage to keep physician and health care employee salaries low because they really have no other option of working in that particular geographic area,” Readal said.

For a better salary, Readal believes he would have to pack up and leave his community, and possibly Montana altogether.

Angela Babcock, a St. James spokeswoman, declined to comment on Readal’s case specifically, saying the hospital would “not offer details about personnel policy.”

Readal is one of many doctors bound by noncompetes. A 2018 survey of nearly 2,000 physicians in five states found that 45 percent of primary care doctors in group settings had signed one.

The 2022 Labor Department study suggested that the dynamic of noncompetes dampening wages is more frequent for higher-paid, higher-educated workers. But such contracts have found their way into relatively low-wage professions, too. Some restrictions are geographic, barring a worker from moving to a rival employer within a certain vicinity; others limit movement within a certain profession. Whatever the specific constraints, such agreements generally stay in effect for at least a year.

Experts say it is unclear why certain companies require lower-wage employees – such as fast-food workers and janitors – to sign noncompetes, as those jobs seemingly involve no trade secrets, specialized training or client information.

“I think the honest answer is that they can,” Starr said. “There’s not a ton of cost for them to do so.”

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For nearly a decade, Kevin Borowske and his wife, Larisa, lived at the Centre Village condos in Minneapolis, where they served as caretakers, maintaining the pool and cleaning common areas.

In 2020, Borowske successfully led a class-action wage-theft lawsuit against his employer, FirstService Residential, which manages other buildings in the area. He also helped kick off an effort to unionize the area’s staff at FirstService, a publicly traded company with a market capitalization of more than $8 billion.

In January, he and his wife were fired and told to leave Centre Village. They were also reminded of their noncompete agreement, Borowske said, which barred them from taking other caretaker work in the area for a year.

“That was really a problem for us,” he said. “We don’t have any income.”

Finding housing would be especially difficult, and Borowske did not want to test FirstService after hearing from other employees how aggressively the company enforced the contracts.

But after Borowske’s story received attention in local media, FirstService notified Borowske and other grounds workers in Minnesota in early February that it would release them from their noncompete contracts. A Feb. 6 letter from the company’s human resources department cited the FTC’s proposed rule as a reason and said that the “change is in alignment with our company values.”

The company did not respond to a request for comment from The Post. In a statement to the Star Tribune in February, FirstService Executive Vice President Andy Gittleman said its separation with Borowske and his wife “were in line with long-standing company policies regarding job performance and usage of the provided housing.”

Being released made Borowske feel as though a weight had been lifted: “As soon as I got that release, I called a resident here and said, ‘Hey, I can come fix your doorknob now.'”

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Three states – California, North Dakota and Oklahoma – have had at least some prohibitions on noncompete clauses for more than a century. Across the country, lawmakers in other places are implementing or considering restrictions on the use of noncompete clauses in an effort to protect low- and middle-income workers. Laws in 11 states and D.C. stipulate that employees either falling below a threshold salary or earning an hourly wage are not subject to these agreements.

But even in states with stricter laws curbing noncompete clauses, companies still place them in contracts and effectively deter workers from leaving with the threat of possible legal action, experts say.

That is what happened to Dave Wagner, a dental equipment technician in Washington state, which prohibits noncompete agreements for workers making less than around $116,500, a group that includes him. In spring 2020, Wagner left his job to care for his wife, Janet, who was diagnosed with stage-four pancreatic cancer. After she died months later, Wagner briefly worked as an electrician before going back to his technician work, installing and repairing vacuum pumps, chairs and wall-mounted X-rays – this time for Henry Schein Dental, a Fortune 500 company valued at more than $10 billion.

He still missed his position at his previous company, Patterson Dental, where he’d worked for 10 years before his wife fell ill. So he was ecstatic when, about a year after he returned to the field, Patterson offered Wagner a job with better pay. But Wagner had signed a noncompete agreement with Henry Schein, still in effect at that point, barring him from dental technician work at any other company in the state.

When Patterson learned of the agreement, it withdrew its offer, Wagner told The Post. And when Wagner’s employer found out he had requested a copy of his noncompete agreement, the company fired him. Henry Schein also warned him that, even though he was terminated, he was still bound by the noncompete and could not seek technician work for a year, Wagner says.

“Now I’m stuck with nothing,” said Wagner, who filed a lawsuit against Henry Schein on grounds that the firm violated the state’s law on noncompetes.

Henry Schein said in a statement that it would respond to Wagner’s claims in court. Patterson did not respond to a request for comment.

Nearly a dozen states restrict noncompete use based on salary thresholds, but the University of Maryland’s Starr argues that the state-by-state approach does not address a core issue: “Noncompete agreements themselves have chilling effects, and [firms and workers] have to spend a lot of money to try to get them voided,” he said.

Lawyers in the few states where noncompete enforcement has long been restricted told The Post that they often hear from workers who say their employer is trying to enforce a noncompete agreement. Joel Fremstad, a North Dakota employment lawyer, said he frequently encounters such cases despite the formal ban.

Companies “have been doing this in North Dakota forever,” he said. “The reason is because they can – and most employees are not going to be in a position to fight this.”

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Some employers view the agreements as necessary.

Andrea Fitzpatrick and Dmitriy Kuzmenko taught ballroom dancing for years in Palm Beach Gardens, Fla., working for a franchise studio. They say the franchise owner asked them in April 2021 to sign a noncompete agreement that would have barred them from teaching within a 25-mile radius of the studio.

They didn’t sign it; instead they opened their own studio, In Motion Ballroom, in nearby Jupiter in July.

Despite their recent experience, they did not want their employees leaving to become rivals, so they asked new hires to sign noncompete agreements.

Fitzpatrick and Kuzmenko describe their contracts as less restrictive than the ones at their previous employer. Their agreement bars employees who depart from teaching ballroom dance within 15 miles of In Motion if they leave, rather than 25 miles, and expires one year after leaving the dance studio, according to a copy of the agreement provided by their lawyer.

“We didn’t want them to ever feel like they were trapped with us,” Fitzpatrick said. “[But] we wanted to have some sort of document [that] would protect the business and our list of clients.”

Fitzpatrick and Kuzmenko have an extra advantage as employers: Florida courts are more supportive of employers – and are more likely to enforce noncompete agreements – than some states elsewhere, according to attorneys.

“Florida is one of the most anti-employee states in the nation,” Florida employment attorney Donna Ballman said.

Workers can fight enforcement, she explained, but by “the time they get a result, they’ve spent tens of thousands, if not hundreds of thousands, of dollars defending themselves, and the noncompete has expired.”