Have you ever been forced to sign a non-compete agreement when you started a job?
About 30 million Americans are trapped by contracts that say if they leave their current job, they can’t take a job with a rival company or start a new business of their own.
These clauses deprive workers of higher wages and better working conditions. In effect, they’re a form of involuntary servitude.
Last week, while America was fixated on Kevin McCarthy’s travails, the Federal Trade Commission (FTC) proposed a sweeping new rule that would ban these non-compete agreements.
This is a big deal. The FTC estimates that such a ban could increase wages by nearly $300bn a year (about $2,000 a worker, on average) by allowing workers to pursue better job opportunities.
Non-competes also harm the economy, depriving growing businesses of talent and experience they need to build and expand. California’s ban on non-competes has been a major reason for Silicon Valley’s success.
The rule isn’t a sure thing. House Republicans will try to kill it. Corporate America will appeal it up to the supreme court, which is hostile to independent regulatory agencies such as the FTC.
For 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 low-wage sectors such as construction, hospitality and retail.
A recent study found one in five workers without a college education subject to them, disproportionately women and people of color.
Employers say they need non-compete agreements to protect trade secrets and investments they put into growing their businesses, including training workers.
Rubbish. Employers in the states that already ban them (such as California) show no sign of being more reluctant to invest in their businesses or train workers.
The real purpose of non-competes is to make it harder (or impossible) for workers to bargain with rival employers for better pay or working conditions.
As we learn again and again, capitalism needs guardrails to survive. Unfettered greed leads to monopolies that charge high prices, suppress wages and corrupt politics.
As Adam Smith, the putative godfather of conservative economics, put it in The Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
America once understood the importance of fighting monopolies.
The presidential election of 1912 was dominated by the question. Once elected, Woodrow Wilson created the FTC to save capitalism from the depredations of powerful corporations and “robber barons” that had turned the economy of the Gilded Age into vast monopolies, fueling unprecedented inequality and political corruption.
But as the FTC began prosecuting giant corporations, the robber barons saw the agency as a major threat – and did what they could to strip it of its powers. Within a few years, the FTC was derided as the “little old lady of Pennsylvania Avenue”.
In 1976, when I ran the policy planning staff of the FTC, the agency again began cracking down on corporations under its aggressive chairman, Michael Pertschuk. (Pertschuk died just weeks ago.)
Big corporations were so unhappy with the FTC under Pertschuk that they tried to choke off the agency’s appropriation, briefly closing it down in 1978. But Pertschuk didn’t relent.
He (and I) left the agency when Ronald Reagan appointed a new chairman, who promptly defanged it.
Now, under its new Biden-appointed chair, Lina M Khan, the FTC is back to being the activist agency that progressives sought in 1914 and Pertschuk resurrected in 1976.
The FTC’s new proposed rule banning non-compete agreements marks the first time since Pertschuk headed the FTC that the agency has issued a rule prohibiting an unfair method of competition.
I wouldn’t be surprised if the new radical-right Republicans now in control of the House tried to pull off a stunt similar to what the House tried in 1978.
In the meantime, kudos to Biden, Lina Khan (and her fellow FTC commissioners Rebecca Kelley-Slaughter and Alvaro Bedoya), and to the FTC staff for protecting American workers and economic competition – and thereby protecting American capitalism from the depredations of untrammeled greed.
Robert Reich, a former US secretary of labor, is professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
