When you add it up, the evidence to date suggests that noncompetes suppress wages, reduce competition and keep innovative ideas from breaking into the market. One study even found that noncompetes lead to higher prices for consumers by reducing competition in the heavily concentrated health care sector.
Noncompetes are the type of restriction that Section 5 of the F.T.C. Act, a federal law passed by Congress more than a century ago, is supposed to prevent. That’s why the F.T.C. last week proposed a rule forbidding companies to subject workers to noncompetes. Under the proposal, noncompetes would be designated an “unfair method of competition,” which the law prohibits. The rule would apply to professions across the board — janitors, nurses, engineers, journalists. Because employers often try to use noncompetes even when they’re unenforceable, the rule would require companies to proactively notify employees currently subject to noncompetes that those restrictions are now void.
People might worry that eliminating noncompetes would make it impossible for companies to hold on to their secrets. But there is good reason to believe that more-targeted alternatives, such as nondisclosure agreements and trade secret law, would get the job done without imposing such a burden on the economy.
We have already seen what life looks like without noncompetes because they have been legally unenforceable in California since the 19th century. Somehow, that hasn’t kept the California economy — the world’s fifth-largest — stuck in the Stone Age. Some observers have even suggested that Silicon Valley became the epicenter of America’s tech industry precisely because noncompetes were unenforceable there. As the law professor Ronald Gilson and others have argued, technological progress benefits from the free flow of workers — and knowledge — between companies and start-ups. Tying down workers through noncompetes risks blocking this progress.
In the wake of the economic recovery from the pandemic, we continue to see a strong labor market and unusually high turnover, with employers complaining that they can’t hire qualified workers. These circumstances only underscore the importance of allowing workers to freely match with the jobs that are right for them. Noncompetes prevent that from happening. Removing them would unlock a tremendous pool of talent, helping employers find and hire the workers they need.
At this stage, the F.T.C.’s proposed rule is just that — a proposal. The public is invited to weigh in during the open commenting period. Hearing from a broad range of voices — including entrepreneurs, employers and workers who have been subject to noncompetes — will help ensure that our efforts are based in reality, not abstract theories.
A thriving, dynamic economy depends on fair competition — not just for consumers, but also for workers. We should be skeptical of any methods designed to prevent it.
Lina M. Khan is chair of the Federal Trade Commission.
Source: | This article originally belongs to Nytimes.com
