Non-compete agreements should be banned, says President Biden

Joe Biden mentioned hamburgers in his 2023 State of the Union address.

Specifically, the president wondered why the person who rang your burger order signed a non-compete agreement barring him from working at a higher-paying burger restaurant nearby. , stated that these agreements would soon be banned.

That’s the current job of Federal Trade Commission Chairman Rina Khan, who in January issued a non-compete clause that barred employees from working for their employer’s competitors for a period of time. announced that it had proposed a rule that would ban the practice of forcing workers to sign .after they quit their jobs.

“Freedom to change jobs is at the heart of economic freedom and a competitive and prosperous economy,” Khan said in a statement. “Non-competition prevents workers from moving freely from one job to another, robs them of higher wages and better working conditions, and robs them of a talent pool that businesses need to build and expand. The FTC’s proposed rules will foster greater dynamism, innovation and healthy competition.”

If the proposed rule is enacted, Americans will have more options for where to work, which in turn will lead to higher wages. They can more easily work for rival companies and start their own companies without fear of being sued. Such liquidity could strain an already tight job economy even further. Workers will have more options for available jobs.

The notice of proposed rulemaking came a day after the FTC sued the three companies over the non-compete clause. It also comes after a number of other efforts the agency has taken to protect competition, including lawsuits to block or dissolve mergers and efforts to modernize the Commission’s and Department of Justice’s merger rules.

The final rule will be published after an ongoing public comment period. Congress can review and disapprove the rules, which would invalidate them, but that is a rare occurrence, especially in the Senate, which has a Democratic majority. are more likely to be tested with

The proposed rule follows calls from advocacy groups and the Biden administration to ban non-competitive conduct, so it’s no surprise that Biden is now applauding the FTC’s move. The Procompetition Executive Order calls on the FTC to use its powers to ban non-competition, and the consumer rights group Public Citizen made the same request in a letter to the FTC last December. Over the years, several consumer and labor protection groups have petitioned the FTC for such regulations. Non-compete clauses are already prohibited in some states, including California. California is home to some notoriously uncompetitive tech companies, but not all.

The FTC estimates that the proposed rule could increase wages by $300 billion annually, affecting 30 million Americans. A 2014 survey by The Economist found that about 20% of workers have non-compete clauses in their contracts. That figure could be as high as 50% for people in high-tech and high-tech jobs, according to Matt Marx, a Cornell University economics and business professor who has studied non-compete agreements for 15 years. expensive.

“I signed my first non-compete agreement in 1995 and didn’t know what I was doing. he said.

Marx said these agreements not only specify that no one should share the secrets of a particular company, but that they can be interpreted more broadly to prevent them from using the skills they had before working for that company. I added that there are many. It debilitates skilled workers and entrepreneurs.

One person Marx interviewed, a woman with a PhD in speech recognition who worked at Bell Labs for nearly 20 years, took a job outside her field in “random computer programming” after 18 months at a startup. I said I had to. d signed her non-compete agreement.

“You’ve been in this industry for 20 years? Well, I’m sorry, but you worked for us for two years, so you can’t do that anymore,” Marx explained. I have to find something else to do.”

Critics of the non-compete clause say the agreement prohibits workers from getting jobs from competitors or even within the same industry. In doing so, they restrict job mobility and discourage workers from demanding higher wages, as they can often change jobs to obtain higher wages. This can push them into lengthy job searches and “career detours”.

Consumer advocacy groups and worker advocacy groups applauded the FTC’s move and the FTC itself.

“Today’s FTC action banning non-compete clauses will also give small businesses and entrepreneurship a big boost,” Stacy Mitchell, co-director of the Institute for Local Self-Reliance, told Recode. rice field. She added that noncompetition can make it difficult for workers to leave their employers and start their own businesses that could compete with them.

Senator Elizabeth Warren (D-Massachusetts) applauded the FTC’s actions to “protect workers” from “harmful contracts.”she murmured“Non-compete clauses give companies unfair power over workers, allowing them to cut wages and benefits without fear of finding a new job or starting their own business. increase.”

Employer advocacy groups such as the U.S. Chamber of Commerce say that non-compete clauses are actually procompetitive because they protect “employers’ special investments, training, and disclosure of confidential business information to their employees.” I argue that it is possible. In a statement issued shortly after the FTC’s announcement, the organization called the rulemaking “blatantly illegal” because it said the FTC had no authority to promote the rule. “When used properly, non-competitive agreements are important tools for fostering innovation and sustaining competition,” the chamber said in an emailed statement.

UPDATE Feb 7 11:25 PM ET: This article was originally published on January 5, but has been updated with Biden’s State of the Union address banning non-compete clauses.