Lawmakers look to ban shadow noncompete agreements in property management contracts

By: - September 6, 2023 3:32 pm

River Towers in downtown Minneapolis is one of more than 380 properties in Minnesota managed by FirstService. Photo by Max Nesterak/Minnesota Reformer.

Earlier this year, Minnesota Democrats banned noncompete agreements, which are shown to suppress workers’ wages by preventing them from changing jobs.

They also banned so-called no-poach agreements between franchise owners of restaurants, which were used to prevent workers from moving from one fast-food restaurant to another of the same brand, for instance.

Since then, the Minnesota lawmakers leading those efforts have learned about another anti-competitive provision in contracts that workers don’t even consent to — but can still trap them in lower paying jobs.

Rep. Emma Greenman, DFL-Minneapolis, said she and Sen. Alice Mann, DFL-Edina, will write a bill prohibiting property management companies from forbidding homeowners associations from hiring their workers.

“These agreements are the same kind of restrictive employment agreements that we have been trying to eliminate and limit because they hurt the workforce … They are anti-competitive and anti-worker,” Greenman said.

The effort comes after Reformer reporting about property management giant FirstService Residential Minnesota, which prohibited its client, a condominium association, from employing any of its workers — either directly or indirectly — for two years after their contract expired.

FirstService workers at River Towers in downtown Minneapolis didn’t agree to the provision and weren’t even aware their employment was in jeopardy should the condo board hire a new property management company. The workers learned of the agreement earlier this year after a reporter for Workday Magazine and The American Prospect reached out to them for a story about a similar provision in a contract between another FirstService subsidiary and a condominium association in New Jersey.

At the time, the River Towers’ contract with FirstService was nearing its end, and the condo board was seeking bids from other property management companies. The contract provision raised the prospect that workers could lose their jobs. Condo owners also had to face losing dedicated workers — some of whom had worked in the building for more than a decade — if they hired a different company.

“It absolutely hurts workers … But it also hurts these homeowners associations,” Greenman said.

The condo board ultimately hired a new firm and FirstService agreed not to enforce the provision for select employees, for whom they did not have positions at other properties. The workers who were allowed to stay at River Towers ended up receiving a significant pay bump of 30% under the new, unionized management company.

“What’s unfortunate is not everyone had a choice,” said Josh Musikantow, a desk attendant who was allowed to stay at River Towers. “All the engineers got transferred, so they couldn’t stay. The Towers never even got the chance to try to out-bid FirstService.”

About one in five American workers are bound by a noncompete agreement, which costs workers more than $250 billion per year by decreasing competition, according to the Federal Trade Commission, which has proposed a national ban on noncompetes.

FirstService Residential Minnesota also required its workers to sign noncompete agreements, but the company later dropped the provisions after the Reformer reported on the case of a caretaker who was fired and faced the prospect of being sued for taking a similar job with another company. At the time, the company told workers it was dropping noncompete agreements because they didn’t align with the company’s values.

Greenman said there are likely shadow noncompete agreements in other industries beyond property management and fast food, but she isn’t sure there’s a way to write a bill to ban all of them.

“I don’t know that there is a fix-all,” Greenman said.

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Max Nesterak
Max Nesterak

Max Nesterak is the deputy editor of the Reformer and reports on labor and housing. Previously, he was an associate producer for Minnesota Public Radio after a stint at NPR. He also co-founded the Behavioral Scientist and was a Fulbright Scholar to Berlin, Germany.