There’s a dirty trick many employers use to keep workers from getting a better job.
Some 30 million Americans are trapped by contracts that say if they leave their current job, they can’t work for a rival company or start a new business of their own.
These are called non-compete agreements.
They block workers from seeing higher wages or better working conditions. And they enlarge corporate monopoly power by stifling competition.
But a sweeping new rule from the Federal Trade Commission would put a stop to these non-compete agreements.
The FTC estimates that banning them could increase wages by nearly $300 billion a year overall by allowing workers to pursue better job opportunities.
But non-competes aren’t just bad for workers. They also harm the economy as a whole by depriving growing businesses of the talent and experience they need to build and expand.
Experts argue California’s ban on non-competes was a major reason for Silicon Valley’s boom.
For several decades, non-compete agreements have been cropping up all over the economy — not just in high-paying fields like banking and tech but as standard boilerplate for employment contracts in many lower-wage sectors such as construction, hospitality, and retail.
A recent survey found that non-competes are used for workers in more than a quarter of jobs where the typical employee only has a high school diploma. Another found that they disproportionately impact women and people of color.
Employers say they need noncompete agreements to protect trade secrets and investments they put into growing their businesses, like training workers.
Rubbish. Employers in states that already ban these agreements (such as California) show no sign of being more reluctant to invest in their businesses or train workers.
The real purpose of noncompetes is to make it harder (or impossible) for workers to bargain with rival employers for better pay or working conditions. Workers in states that have banned non-compete agreements have seen larger wage increases and more job mobility than workers in states where they are still legal.
As we learn again and again, the economy needs guardrails — and workers deserve protection. Otherwise, unfettered greed will lead to monopolies that charge high prices and suppress wages.
America once understood the importance of fighting monopolies. Woodrow Wilson created the Federal Trade Commission in 1914 to protect the public against the powerful corporate monopolies that fueled unprecedented inequality and political corruption.
In 1976, when I ran the policy planning staff at the FTC, it began cracking down on corporations under its then assertive chairman, Michael Pertschuk.
Corporate lobbyists and their allies in Congress were so unhappy they tried to choke off the agency’s funding, briefly closing it down. Pertschuk didn’t relent, but eventually he (and I) were replaced by Ronald Reagan’s appointees, who promptly defanged the agency.
Now, under its new Biden-appointed chair, Lina Khan, the FTC is back. Its ban on non-compete agreements nationwide marks the first time since Pertschuk that the agency has flexed its muscle to issue a rule prohibiting an unfair method of competition.
The rule is hardly a sure thing. I wouldn’t be surprised if the radical-right Republicans, now in control of the House, tried to pull off a stunt similar to what the House tried in the late 70s. And corporations are sure to appeal the rule all the way up to the Supreme Court.
In the meantime, kudos to Lina Khan and the FTC for protecting American workers from the unfettered greed of corporate America.
Read it on Robert Reich’s blog.