The Federal Trade Commission earlier this week voted to ban noncompete contracts for most workers in the United States. These contracts, research shows, depress wages, stifle entrepreneurial innovation and trap people in jobs they’d prefer to exit. Taken all together, says FTC head Lina Khan, they are “robbing people of their economic liberty.”
Who would want to be against economic freedom, not to mention raises for America’s workers? The answer is both Republican FTC commissioners and business interests. And in so doing, they proved that President Joe Biden’s FTC is calling out both the GOP and the business lobby on one of their biggest lies to workers: that they are defenders of economic liberty.
Since many workers can’t get by minus a salary, a noncompete leaves them effectively trapped in a job — which is almost certainly the point.
Noncompetes are contracts workers sign as a condition of employment that prevent them for working for competitors — often, but not always, within a certain geographic range — for a set period of time, sometimes up to several years, after leaving a workplace. Employers claim they need these contracts to protect everything from trade secrets to investments in training their workers. Since many workers can’t get by minus a salary, a noncompete leaves them effectively trapped in a job — which is almost certainly the point. They are, not surprisingly, widely loathed. An Ipsos poll taken last year found two-thirds of employed Americans want them banned.
These contracts were once relatively rare, used mostly for high-ranking executives and others who might possess corporate secrets they could pass on to business rivals. But over the past several decades, as American workers lost power, noncompete usage soared. It’s thought that about 18% of employees are currently working with such a contract while, at some point, 4 in 10 of us have been subject to them.
Their usage runs the gamut of the workforce, from doctors and veterinarians to fast food workers and baristas. Jimmy John’s famously subjected its sandwich makers to them, until media attention and the resulting public criticism that followed made it stop.
The U.S. Chamber of Commerce — which claims its mission is to “advance human progress through an economic, political and social system based on individual freedom” — was among the first to file a lawsuit to put a stop to the noncompete ban. The FTC’s actions, the Chamber said in a statement, are “a blatant power grab that will undermine American businesses’ ability to remain competitive.” Please. The only blatant power grabs here were from America’s employers, who have used noncompetes for decades to avoid paying workers what they are worth. America’s businesses and their political enablers are just screaming mad they won’t be able to get away with it any longer.
It’s hard not to suspect that the squawking employers have a bottom-line concern. The FTC’s ban exempts high-ranking executives who have a policymaking role. Businesses have other ways to ban former employees from sharing proprietary trade secrets and intellectual property, after all. But it’s well known that the best way for a worker to boost their wages is to go out and get another job. The FTC estimates that doing away with noncompetes will add $400 billion to $488 billion to workers’ wages over the next decade. That’s hardly chump change.
Any time government agencies even think about issuing a new regulation, politicians and lobbyists leap in screaming about threats to economic freedom.
That’s only the start of the economic costs. The use of noncompetes also stifles economic innovation. Last year, a poll released by the Small Business Majority found 46% of entrepreneurs claimed such contracts prevented them from starting or expanding their businesses. And business historians say the reason Silicon Valley developed around Stanford University and not East Coast rival MIT is because California’s strict ban on noncompetes in almost all circumstances — which has been in place since the late 19th century — gave workers the freedom to easily move from one company to another or just start up a venture of their own. The result is that the state currently ranks as the world’s fifth largest economy.
Those opposing the end of noncompete clauses claim to be acting in all our interests. The FTC is exceeding its legal authority, they say, and the matter should be left to the states and Congress. This is all disingenuous. First, the FTC has the right to weigh in on matters of unfair competition, the definition of which these contracts would seem to meet. The states, no matter what political party is in charge, can be fair-weather friends to workers — last year, New York’s Democratic Gov. Kathy Hochul vetoed a proposed ban on noncompetes after Wall Street power brokers made their opposition clear. And waiting on Congress is, of course, simply an excuse for inaction.
But there’s a larger issue here. We are a nation that claims to value liberty above all else. Any time government agencies even think about issuing a new regulation, politicians and lobbyists leap in screaming about threats to economic freedom. But the existence of noncompetes not only gives the lie to that myth, but it also highlights the not infrequent hypocrisy of business interests wrapping themselves in that mantle. There’s nothing — and I mean nothing — freeing about a practice that effectively keeps millions of Americans trapped in their jobs.
