The American Economic Liberties Project, a progressive think tank seeking to ingratiate itself with populists on the right, lashed out at Federal Trade Commissioner (FTC) Andrew Ferguson for abandoning a Biden-era rule that would ban all noncompete agreements.
“Ferguson has once again shown his contempt for American workers by siding with the Chamber of Commerce to scrap a straightforward ban on noncompete agreements,” Nidhi Hegde, the AELP’s executive director said in a statement, claiming that the ban had “clear legal authority” and “rigorous research” behind it.
In fact, it has neither.
As Ferguson pointed out, the ban is “unlawful six ways from Sunday” and has already been blocked by the courts that ruled that the ban exceeded the FTC’s authority. All Ferguson did was refuse to waste taxpayer dollars in a futile effort to defend it.
The rule’s supposed benefits rest on shaky foundations. Economist Brian Albrecht explained in a recent post that the limited academic research on noncompetes focuses on individual states, industries, and types of jobs. The results found in this research may not generalize to the entire economy under a universal ban and such a ban might harm some workers.
Noncompetes can benefit workers by incentivizing firms, especially technology firms, to invest in workers if a long-term relationship between the firm and the worker is ensured through a noncompete. No firm wants to invest in training a worker or potentially giving the worker firm-specific trade secrets if the worker could leave and work for the competition.
The proposed ban would thus override hundreds of state laws, creating what Albrecht described as a “one-size-fits-all approach,” making it impossible to learn more about when noncompetes can and cannot benefit workers and employers alike by encouraging them to invest more fully in one another. This kind of investment fosters economic growth by encouraging worker skill acquisition and technological innovation. Likewise, employer investment in worker training leads to higher worker salaries in the long run as the more productive workers can command a higher salary from their current and future employers. Thus, in these situations, a noncompete can be a win-win for the worker and employer.
Ferguson has expressed a commitment to protecting workers, including going after noncompetes that may violate U.S. antitrust law and harm workers. Noncompetes can potentially harm workers, particularly hourly workers, by preventing them from changing jobs, allowing an employer to hold their salary down without the requisite investment in training. Ferguson states that he favors a case-by-case approach to noncompetes, rather than overly broad, and likely illegal, blanket ban that might help some, harm overs and have overall economic costs that exceed the benefits.
It has been a rough road for American workers over the last twenty years, from the housing boom-and-bust, to the Great Recession, to the disappointingly slow recovery following it, to COVID, and then to the higher prices that followed. The desire to “do something” for the American worker is understandable, which is at least partially responsible for the increased appeal of populist policies. However, care must be exercised so counterproductive policies, like a blanket ban on noncompete agreements, aren’t implemented which end up doing more harm than good and leave the American worker worse off.
