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Biden Can Free Millions From Coercive Employment Contracts

Feb. 5, 2021, 9:00 AM

There’s at least one pressing issue, affecting a large segment of working people, that legislators of both parties support curtailing—noncompete clauses. A noncompete restrains workers’ freedom after they leave their current job.

President Joe Biden has made no secret of his hostility to noncompete clauses for workers. As vice president in 2015, he condemned these contracts for depriving workers of the “freedom to negotiate for a higher wage with a new company, or to find another job after they’ve been laid off.”

In December 2019, he tweeted an article I co-wrote on noncompetes and said, “We should get rid of non-compete clauses and no-poaching agreements that do nothing but suppress wages.” His campaign affirmed this commitment as part of a broader program to empower workers. Thankfully, Biden has the power to free workers from coercive noncompete clauses through good appointments to the Federal Trade Commission.

Noncompetes Limit Workers’ Exit Options

Take Amazon, for example. The company prohibited warehouse workers from accepting employment or starting a business in any line of Amazon business that the person “supported” for 18 months after leaving, potentially anywhere in the world.

At present, tens of millions of workers across a range of occupations are bound by these contracts. Noncompetes limit workers’ exit options to 1) uprooting themselves, 2) finding a new line of work, or 3) remaining unemployed for the duration of the noncompete clause.

Noncompetes lock workers in place and rob them of an important source of power: the freedom to find new employment or start a business in their line of work in their community. Even when employers do not or cannot enforce noncompete clauses in court, they deter worker mobility because workers fear being sued.

Research has found that noncompete clauses reduce wages and wage growth over time. They can also trap workers in abusive and discriminatory work environments because a bad boss and a paycheck is, for most people, preferable to no paycheck. In medicine, the enforcement of a noncompete against a physician can compel unemployment or a relocation and sever long-standing doctor-patient relationships.

Employers present noncompete clauses on a take it-or-leave it basis and rarely face resistance from new hires, who feel pressure to accept employment offers to pay rent, utilities, and other obligations and cannot easily turn down work.

Employers who claim they need noncompetes to protect customer lists and other proprietary information from rivals have more targeted tools at their disposal. They can use trade secret law to protect in-house know-how. Employers concerned about departures can keep workers by offering regular raises and promotions and loyalty bonuses if they stay for a specified period. Indeed, in a healthy labor market, employers feel constant pressure to retain workers.

Biden’s FTC Can Outlaw Noncompete Clauses

Regardless of whether Congress enacts legislation, the Biden administration has the power to ban noncompetes for all workers. In March 2019, the Open Markets Institute, some of the largest labor organizations such as the AFL-CIO, SEIU, and UFCW, and more than 60 other organizations and scholars petitioned the FTC to outlaw noncompete clauses. An FTC regulatory ban would nationalize and broaden the District of Columbia’s recent near-universal prohibition on noncompete clauses.

The two Democrats on the FTC—Rebecca Kelly Slaughter and Rohit Chopra—support a commission rule restricting noncompete clauses. A few congressional Republicans have also publicly called for FTC action against noncompetes. Sen. Todd Young (R-Ind.) joined a letter with six Democratic colleagues urging the FTC to limit the use of noncompetes by employers Sen. Marco Rubio (R-Fla.) in a separate submission encouraged the FTC to focus on the harms to low-wage workers from noncompetes.

With Chopra being nominated to lead the Consumer Financial Protection Bureau and Chairman Joseph Simons stepping down, the five-member FTC will soon have two vacancies at the top. In filling these important positions, Biden should select individuals with a demonstrated commitment to taming corporate power.

Among other priorities, his nominees should make the FTC a friend of working people by prosecuting employer cartels, stopping mergers that further concentrate labor markets, and freeing workers from noncompete clauses.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Sandeep Vaheesan is legal director at the Open Markets Institute and previously served as a regulations counsel at the Consumer Financial Protection Bureau.

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