The Federal Trade Commission’s push to ban noncompete agreements follows President Biden’s 2021 executive order seeking to end provisions that limit workers’ ability to switch jobs. About 30 million U.S. employees work under some sort of noncompete clause, so eliminating them would have a far-reaching impact. Straight Arrow News contributor Larry Lindsey cautions that the Biden Administration’s efforts to cut noncompete agreements are a bad idea, because they may not actually help workers get higher pay or other benefits.
During the recent pandemic and shortages of workers, the last firms to really worry about getting qualified workers were the big boys. After all, it’s probably more prestigious to work for a brand-name company than a small supplier. And so it’s easier for the big guys to just simply get the workers they need by getting them from their suppliers. That makes it hard for the suppliers. It also lowers the chance that you’re going to have a lot of competition, since the big guys have a big advantage if the little guys can’t protect their workforce from being poached.
The second big issue is, invest in workers. Now, if I know that I have a worker who can walk across the street at any time to my competitor and blab about everything we’re doing at my firm, how likely am I to invest in that worker to let them in on the secrets, let them see how the office is actually run, how the company has actually run? Not very.
And the reason for noncompetes and also nondisclosures is exactly that. If you, the employer, takes someone on and you want them to be a full part of your mission, then you really can’t trust them fully if they can simply be bought out or hired by your competitor. A related problem is investment in human capital. Most workers aren’t paid just for their time, their sweated labor, so to speak. They’re paid because of skills. And when people go to work, they add to those skills.
But adding to the skills isn’t free to the employer. They’re more likely to increase workers’ skills if they have some confidence the worker isn’t just going to get up and quit on them. And that’s another reason for noncompetes.
In addition, workers do have some say in this that there’s not imposed on them. They sign up for a contract. And if I have a lot of human capital, I’m going to demand my employer pay me for that. I’m going to have actually more power at the negotiating table, if my employer knows that I’m not going to go across the street. So it’s unclear that what the FTC is proposing is actually going to raise people’s wages.
