When you add it up, the evidence to date suggests that not competing lowers wages, reduces competition, and stops revolutionary ideas from entering the market. Even one study found that non-competition results in higher prices for consumers by limiting competition in a highly concentrated healthcare sector.
Non-compete obligations are a sort of restriction referred to in Section 5 of the FTC Act, a federal law passed by Congress greater than a century ago, is to stop. That’s why the FTC last week proposed a rule prohibiting firms from subjecting employees to a non-compete clause. Under the proposal, non-compete clauses can be known as an “unfair approach to competition” which is prohibited by law. The rule would apply to all professions – janitors, nurses, engineers, journalists. Because employers often attempt to apply non-compete clauses even when They are not possiblethe availability would require firms to proactively notify employees currently subject to non-competition laws that those restrictions are actually invalid.
People may worry that eliminating non-competitors will prevent firms from keeping their secrets. However, there may be good reason to imagine that more targeted alternatives, similar to non-disclosure agreements and trade secret laws, would do the job without imposing such a burden on the economy.
We’ve already seen what life is like without non-compete clauses because they were legally unenforceable in California because the nineteenth century. Somehow, that did not stop California’s economy – the world’s fifth largest – within the Stone Age. Some observers even suggested that Silicon Valley became the epicenter of the American tech industry precisely since the non-compete clause was unenforceable there. Just like law professor Ronald Gilson and others arguedtechnological progress advantages from the free movement of employees – and knowledge – between businesses and start-ups. Binding employees through non-competition threatens to dam this progress.
In the aftermath of the post-pandemic economic recovery, we proceed to see a robust labor market and very high turnover, with employers complaining that they can not hire expert employees. These circumstances only underscore the importance of allowing employees the liberty to suit into occupations that suit them. Not competing prevents this. Removing them would unlock an enormous pool of talent, helping employers find and hire the employees they need.
At this stage, the rule proposed by the FTC is just that – a proposal. The public is invited to take part in an open commentary period. Hearing a wide selection of voices – including businessmen, employers and employees who’ve been subject to non-competition clauses – will help make sure that our efforts are based on reality and never on abstract theories.
A thriving, dynamic economy depends upon fair competition – not just for consumers but additionally for workers. We ought to be skeptical of any methods designed to stop this.
Lina M. Khan is the chair of the Federal Trade Commission.