The Chamber of Commerce argues that a federal ban is not necessary because non-compete clauses are already subject under antitrust law to a “rule of reason” analysis, which requires courts to review made to weigh the competitive effects of a contract against its anti-competitive effects. When concerns go beyond antitrust, the chamber said, they should be adjudicated by courts under contract law or “left to state legislatures.”
Shierholz and others say a ban is appropriate. Employers are adequately protected against dishonest former employees by other provisions, such as the trade secrets law, says Sandeep Vaheesan, legal director of the Open Markets Institute. If employers want to prevent their employees from going to competitors, the best way to do it, says Vaheesan, “is to treat workers well, offer promotions and regular raises, instead of locking them up through of these one-way contracts “.
Unlike Shierholz and Vaheesan, Russell Beck, a lawyer in Boston, asserts that trade secrets law does not completely replace non-competition agreements because “it is very difficult for an employer to know whether an employee has taken away information with him when he leaves ”. And employees may not fully understand what is allowed and what is not, says Beck, a founding partner of Beck Reed Riden, who has represented employees, former employers, and new employers in non-compete cases.
In 2019, under the Trump administration, the Federal Trade Commission considered passing new rules against non-compete agreements, but the effort came to naught. It’s getting ready again now that Joe Biden is president and Lina Khan, a staunch enemy of the monopoly, is president of the Federal Trade Commission. In July, Biden issued an executive order encouraging competition in the U.S. economy. He encouraged the committee to “limit the unfair use of non-competition clauses and other clauses or agreements that may unfairly limit the mobility of workers”.
This will take some time, however. Supporters of strong action, including members of the Open Markets Institute and the Economic Policy Institute, hoped the FTC would release a rule for comment, building on its extensive data collection in 2019. Au instead, in August, the commission simply started collecting new data. with a dossier “inviting the public to comment on the clauses of the contract that could harm fair competition”.
California, North Dakota, and Oklahoma have banned non-compete agreements since the 19th century. Beck, the Boston attorney, says his tally three-quarters of states have manipulated their non-compete laws in recent years, most in the sense of restricting their use, though none go so far as to to join the three states with bans.
In a little-noticed but important development, this year the Uniform Law Commission drafted a model law restricting non-competition agreements that state legislatures are free to pass. The law requires employers to give potential hires advance notice of non-compete agreements and prohibits agreements from being used with workers earning less than the average wage in a state. (The majority of workers earn less than the average wage, as a small number of high-paid people push the average up.)