🇺🇸 No More Noncompetes?

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Entertainment: Legendary composer Burt Bacharach, whose orchestral pop style was behind hits like "I Say a Little Prayer" dies at 94 (AP)

BUSINESS

No More Noncompetes?

Last month, the US Federal Trade Commission proposed a rule that would prohibit employers from requiring new hires to sign noncompete agreements. FTC Chair Lina Khan (pictured above) says the agency also wants to eliminate training repayment programs, saying both provisions prevent workers from getting better jobs.

President Biden called out noncompete agreements in this week's State of the Union Address, as he wondered why fast food workers would be forced to sign them.

Reporting from the Right: FTC says proposal to ban noncompete clauses could boost pay by $300B a year (New York Post)

Reporting from the Left: Federal Trade Commission proposes banning noncompetes for workers (CNN)

From the Flag: This is in line with the Biden administration’s push to protect labor, which includes efforts aimed at making it harder to classify workers as “independent contractors” – who can more easily be denied benefits. Meanwhile, the US Chamber of Commerce has suggested it could sue to stop the move. Here’s more from both sides of the political aisle.

LEFT-LEANING SENTIMENT

Noncompetes Have a Chilling Effect on American Enterprise

• Some states don’t allow noncompetes to be enforced, but around 20% of American workers must still sign them.

• Noncompete agreements are outdated and increasingly go too far, banning workers from certain areas and lasting for years.

• It’s strange that the US Chamber of Commerce – which is supposed to champion the free market – would oppose ending noncompetes.

“What a Ban on Non-compete Agreements Could Mean for American Workers” ​​Isaac Chotiner, The New Yorker: “The Federal Trade Commission (has) proposed a new rule that would ban the use of non-compete clauses in employment contracts. Companies would also be forced to inform current employees that any previously signed non-competes were no longer binding. The clauses, which typically prevent workers from joining competitors or starting their own company for a certain period of time after their employment, are already banned or largely unenforceable in a small number of states; many others place restrictions on their use, including for certain categories of employee. Still, about one in five American workers have signed them, and the FTC has claimed that the countrywide elimination of these clauses would generate extra job opportunities for as many as thirty million workers, and raise wages by three hundred billion dollars.”

“Banning noncompete clauses would be an economic game changer” Editorial Board, Washington Post: “Some critics argue that the FTC's move shows that the Biden administration is catering to labor unions. But banning noncompetes for most workers has substantial bipartisan support, because it is justified by research and real-world experience. Noncompetes depress wages, hamper people's ability to change jobs and have a ‘chilling effect’ on entrepreneurship, studies show. A free-market economy works better when workers may take their talents to the places they can do the most good. These sorts of agreements have been around for centuries. They began with a reasonable premise: Companies invest time and money to train workers, and they don't want those workers to leave right away for a rival firm. But over time, noncompetes have become draconian, sidelining workers for longer periods of time and restricting employees from working in ever-larger geographical areas.”

One more opinion piece from the Left: Big Business’ Plan To Block Biden’s Ban on Noncompete Agreements Klippenstein, Fang, & Schwarz, The Intercept

RIGHT-LEANING SENTIMENT

This Move Would Harm Both American Workers and Companies

• The FTC is operating outside of its mandate here and also effectively limiting training opportunities, which help careers grow.

• Noncompete agreements, like nondisclosure agreements or NDAs, ensure companies can protect themselves.

• If noncompete agreements are eliminated, companies will not be incentivized to train young workers for specific skills, dooming many to middling careers.

“The FTC’s Breathtaking Power Grab Over Noncompete Agreements” Eugene Scalia, Wall Street Journal Opinion: “Here, the FTC is rewriting 30 million contracts and overriding 47 state laws. But until two weeks ago, it evidently had never brought a case contending that a noncompete agreement was an ‘unfair method of competition.’ The FTC is straying outside its lane. Congress never meant the commission to be an employment regulator, and at times the proposal fails to appreciate fundamental workplace concerns. There is strong bipartisan support for apprenticeship programs and other ‘work-based learning’ in which employers give the training and education that many universities fail to provide. These programs equip workers not only for the job at hand but for productive careers. Yet the FTC, with seeming indifference, projects that its proposal will reduce these opportunities, since companies are less willing to invest in workers who may take their know-how to a rival.”

“FTC’s blanket non-compete ban is solving the wrong problem” Ani Huang, The Hill Opinion: “Many companies use non-disclosure agreements (NDAs) to protect confidential and competitive information. … However, the proposed rule’s definition of ‘non-compete’ is so broad that it could capture many NDAs in its net. Applying the SEC logic, if human capital should be treated like any other important asset, then shouldn’t companies be allowed to protect their investment in that asset? … The SEC’s recent insider trading rules stipulate that a ‘cooling-off period’ is necessary even when executives are bound by law not to use insider information when trading stocks. A properly drafted non-compete agreement is, in essence, a cooling-off period used for the very same reasons, but it is being rejected by the FTC as unnecessary and anti-competitive. Non-compete agreements are generally limited in scope to a specific job function within a company, time and geography to be enforceable.”

One more opinion piece from the Right: How An FTC Ban On Non-Compete Agreements Could Keep Pizza Delivery Guys Shuttling Pies For Life Jeremiah Ludwig, The Federalist

FLAG THIS

Flag Facts: Noncompete Rules Vary by State, Plus a Twist

Over 30 million workers in the United States are currently bound by noncompete agreements (NELP).

In some states, noncompete clauses are largely unenforceable, while many of the agreements only apply for a certain number of years or within specific geographic locations.

Perhaps surprisingly, a 2019 study found workers who learn they will be bound by a noncompete agreement before taking the job earned an average of 9.7% more than those who were not bound by such clauses (SSRN).

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