For decades, companies have used noncompete clauses to retain top executives and protect trade secrets. But now, similar agreements are becoming more common among low-wage home care workers, which experts say can be a double-edged sword.
As the caregiver shortage continues and the demand for home care increases, restrictive agreements will only become more common, according to Angelo Spinola, a shareholder and attorney who represents home care companies at international labor and employment law firm Littler Mendelson.
“You’re going to have lots of companies [with] lots of clients and a great pipeline of work,” he told HHCN. “The issue [they’ll] have is that they don’t have enough of a labor force to satisfy their client demands, so you’re going to see noncompetes, nonsolicits and direct hire provisions.”
Currently, the latter two options are most common among Spinola’s clients. When presented to caregivers, nonsolicit agreements usually allow them to work for competitors but restrict workers from taking clients or employees with them. Meanwhile, direct-hire provisions are client agreements that require customers to pay the company a fee, usually $5,000 to $10,000, if they hire an agency caregiver directly.
Without that fee, companies are out the money and time spent vetting and matching the caregiver, as well as processing the customer.
As such, Spinola recommends all home care agencies use direct-hire provisions. Otherwise, customers can cut out companies and hire caregivers directly with no recourse.
“The client says ‘I no longer need your services,’ the caregiver resigns, and then later [the company] finds out the client and caregiver are working together,” Spinola told HHCN. “If there was an agency fee of $6 an hour, the client may have said to the caregiver, ‘I’ll pay you an additional $3 an hour and keep the other $3, and we won’t use the agency for anything.’ ”
Companies without direct-hire provisions often come to Spinola’s firm after being burned. But when contractual direct-hire terms are clear from the get-go, agencies have fewer problems, Spinola said. Many direct-hire agreements also include an attorney fee, in the event companies must litigate.
Nonsolicit agreements are another way companies can also protect agency assets without restricting workers’ mobility.
“I think that’s probably the most common trend, with the idea being that the agency is trying to protect the client relationship,” Spinola told HHCN. It prevents caregivers from “being introduced to the relationship and then taking that relationship either independent or to another agency.”
If agreements are violated, caregivers receive cease-and-desist types of letters followed sometimes by requests for damages, which must be proven by the agency.
The problem with noncompetes
While nonsolicits are appropriate at the caregiver level, noncompete agreements, which prevent employees from working for competitors within a certain time frame and region after they leave a job, should be reserved for high-ranking employees with access to critical and confidential trade secrets, Spinola told.
A report by the U.S. Treasury backs up his opinion.
Noncompete agreements can “protect trade secrets, reduce labor turnover, impose costs on competing firms, and improve employer leverage in future negotiations with workers,” the report says. But for low-wage workers without access to trade secrets, noncompete agreements reduce employees’ leverage in wage negotiations and offer fewer opportunities for career advancement, it explains.
In California, North Dakota and Oklahoma, noncompete agreements generally aren’t permitted, while Illinois and Massachusetts recently put in protections for low wage workers. Additionally, legislation to ban or reform noncompete clauses has been introduced at the federal level and in at least nine states, but still some home care companies use noncompete clauses at the caregiver level.
“Our concern is that noncompete agreements could force workers more and more into poverty because they would have fewer options,” said Robert Espinoza, vice president of policy at PHI, an advocacy group for direct care workers. “When direct care workers make $11 an hour and many providers don’t offer full-time hours to give workers a decent living standard, these workers often have no other choice but to seek other jobs to bolster their incomes.”
Rather than retain talent, he worries noncompete agreements could prevent workers from entering the home care industry altogether.
“Why would they enter the sector?” Espinoza said. “That’s especially troubling in a time in which providers are increasingly struggling with recruitment and retention challenges.”
Such struggles are the very reason restrictive agreements, such as direct-hire provisions, nonsolicit agreements and noncompetes, will become more common in the years to come, according to Spinola.
“Maybe 30% [of our clients] have some form of restrictive covenant,” he said. “I would expect that’s going to be over 50% probably in the next few years.”
Written by Bailey Bryant