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Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements

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The champions of the “free market” are frantically lobbying to block the Federal Trade Commission’s imminent ban on noncompete agreements, which prevent workers from seeking better-paying jobs or starting new businesses.

The U.S. Chamber of Commerce, the largest business lobby in the country, touts itself as the voice for “competition in the marketplace,” a principle it says is vital for innovation and dynamism in the economy. Despite its rhetoric, the Chamber is mobilizing against a major reform proposed by the FTC to liberate workers from so-called noncompete clauses. Noncompetes have become rampant at large companies, which force many workers to sign them as a condition of employment. Today, about 1 in 5 American workers — some 30 million people — are bound by a noncompete.

“This is just another example where support for the ‘free market’ is effectively Calvinball for pro-business groups,” economist Dean Baker of the Center for Economic and Policy Research told The Intercept. “They are perfectly happy to effectively redefine the free market when it suits their interests.”

Indeed, this phenomenon — of corporations loudly agitating for the “principles” of the “free market” but opposing functioning markets in practice — was recently pointed out by an anonymous commenter on the FTC’s website. The poster, writing in support of the proposed FTC rule, said, “I find it ironic many who support non-compete clauses also claim to support the free market/capitalism, which supposedly thrives off of competition.”

This should be no surprise, however. In Adam Smith’s “The Wealth of Nations,” published in 1776, he points out that “to widen the market and to narrow the competition, is always the interest” of the biggest “merchants and master manufacturers.” Therefore, the public should listen to the arguments of such interests “with the most suspicious attention” since they “have generally an interest to deceive and even to oppress the publick.”

Pro-business groups contend that the FTC does not have the legal authority to issue such a ban. “Attempting to ban noncompete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition,” the U.S. Chamber of Commerce Senior Vice President for International Regulatory Affairs and Antitrust Sean Heather said in the statement. (The latter argument ignores the variety of other laws that exist protecting businesses’ proprietary information.)

On Tuesday, the Chamber and a coalition representing hundreds of employers sent a letter to the FTC, requesting an extension on the comment period to provide industry groups with more time to mount opposition. The FTC announced the rule on January 5. After a 90-day public comment period, the FTC may decide to amend the rule or withdraw it. If the agency moves forward with the noncompete ban, the rule takes effect 180 days after publication of the final regulation.

The Chamber-led industry coalition includes the American Hospital Association, the American Bankers Association, National Restaurant Association, and dozens of other employer-led groups that represent the very largest corporations in America.

The Chamber has threatened a lawsuit to block the FTC rule. “There is no need to panic,” Jackson Lewis, one of the most aggressively anti-union law firms in the country which advises businesses, wrote in a special report on January 10: “It is still early in the process […] if the final rule is issued, there will be significant and substantial legal challenges to it.”

The proliferation of so-called noncompete clauses have flooded into the economy — a phenomenon that has become common even for fast-food workers, clerks, and low-level hospital employees. In 2016, a report from the Treasury Department found that 15 percent of workers without a four-year college degree are subject to noncompete agreements, despite few of such workers possessing trade secrets. The clause generally restricts workers from taking similar employment elsewhere or starting a new business in the future.

“It is outrageous that these companies want the right to not have to compete with each other in an open market for employees.”

These restrictions have caused alarm among economists and worker advocates. The Economic Policy Institute has found that noncompete clauses have fueled rising inequality by reducing “labor market fluidity” — that is, the ability for workers to change jobs. One of the primary ways a nonunion worker can bargain for a better wage is to threaten to leave for a better paid position elsewhere, a dynamic that is eliminated by noncompete clauses.

“It is outrageous that these companies want the right to not have to compete with each other in an open market for employees,” J.W. Mason, an economist at the City University of New York, told The Intercept. “On a competitive market they don’t want to pay what people’s labor would actually be worth.”

The FTC’s proposal followed a July executive order by President Joe Biden instructing the agency “to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

FTC Chair Lina Khan’s appointment was heralded by progressives like Sen. Elizabeth Warren, D-Mass., as “tremendous news” and a “huge opportunity to make big, structural change by reviving antitrust enforcement and fighting monopolies.” Selected to shake up an agency long considered by progressives to be too soft on business, Khan has challenged decades of antitrust law by arguing that there’s a monopoly case against Amazon.

And the rule is popular, enjoying support from two-thirds of people currently employed, according to a January 6 poll by Ipsos. Legislators from both parties have introduced bills that also sharply restrict the use of such clauses.

“Speak up and file a comment if you have something to say,” Fisher Phillips instructs clients in a frequently asked questions page. “Coordinate with your Fisher Phillips attorney if you would like guidance on this process.” Fisher Philipps has in the past conducted trainings with the Chamber of Commerce instructing employers on noncompetes.

A recurring theme in the public comments is medical professionals expressing frustration with noncompetes leaving them unable to hire. “Noncompete clauses force doctors to move out of the state if they [are] wanting to switch jobs and cause them to not pursue jobs in the first place,” wrote Dr. Shiraz Rahim, a physician at the Rush University Medical Center in Chicago, whose responsibilities include hiring other doctors. “This has contributed to a shortage of doctors across our system and made it impossible to recruit new doctors to our area.”

“I previously worked in an underserved area of Ohio where patients had to wait over 6 months to see a medical specialist. My hospital job required a non compete of 20 miles,” writes Florida physician Katherine Lu. “These non completes force physicians to leave the community and their patients if they want to leave their job. I personally had to move with my family to another state to work again after leaving.”

In another public comment, Dr. Cordelia Ariel Nason, director of anesthesiology at Northridge Surgical Suites in Nashua, New Hampshire, described the dire consequences of noncompetes, which she says “tips the balance in favor of large companies” that own hospitals and other medical facilities.

“These large corporations then hire doctors, coerce them to sign non compete contracts which effectively limits working at the very facilities where they dedicate their lives to,” Nason writes. “And then if working conditions under the company are poor or the company terminates their own contract with the medical facility or the medical facility terminates the contract with the company, the doctor is then unable to work at that facility for themselves or another company that may have more favorable conditions.”

To the extent that arguments against noncompetes bother to go beyond the procedural questions about the FTC’s authority, they tend to focus on the idea that noncompetes promote innovation by preventing employees from leaving a job and taking trade secrets with them. Indeed, employers frequently argue that noncompete clauses are necessary to protect confidential information, such as marketing strategies or pricing plans. The fear of losing the competitive edge from inside information has fueled the proliferation of such employment contracts.

But advocates note that the FTC ban on noncompete clauses, like similar bans enacted in recent years in Maryland and California, do not circumvent existing laws banning the theft of trade secrets and other proprietary information. Employers may still require confidentiality agreements and other restrictive covenants in employment contracts, while allowing former employees to leave and work at competing firms.

“Many states, most notably California, have long banned noncompetes; they seem to be doing fine,” said Baker, the economist. “The claims on innovation are pretty obvious nonsense, given California’s dominance of tech.”

Another argument advanced by advocates is that noncompetes incentivize employers to invest in training employees, since there isn’t risk of them leaving for a competitor. “There might be some impact on training, but the benefits in the form of higher wages and more frequent startups almost certainly offsets this,” Baker said.

Lobbying records show corporate interests are preparing to fight. The HR Policy Association, which represents major employers including McDonald’s Corporation and Johnson & Johnson, has closely tracked the reform effort around noncompete clauses.

The National Association of Manufacturers, which represents Toyota, Exxon Mobil, BNSF, and other large employers, reported lobbying the FTC and other federal agencies over noncompete issues.

Opposition even extends to the media. The National Newspaper Association, which represents community newspapers across America, signed onto the Chamber letter sent earlier this week. News outlets, like virtually every other industry, have increasingly adopted noncompete clauses in employment contracts, not only for top editors and executives, but also for low-level journalists and other employees.

Throughout the history of capitalism, the goal of employers — whatever their rhetoric — has always been to reduce competition in various ways in order to drive down wages. In the 1800s, as the British Empire prepared to eliminate slavery in its possessions, British officials laid plans to prevent their former slaves from having the option of buying their own land to farm — and therefore be in a position to demand better pay. This was, in a sense, the noncompete clause of the day.

More recently, in Silicon Valley, Adobe, Apple, Google, and Intel privately agreed not to poach workers from each other with offers of higher salaries. As the New York Times put it in 2015, they “conspired against their own employees.” The four companies eventually settled a lawsuit for $415 million. Other companies were also involved in the collusion, including eBay. (eBay was founded by Pierre Omidyar, who also founded First Look Media, whose nonprofit arm The Intercept was originally part of.)

At least one lobbying group let slip that there’s another way to retain employees. The American Optometric Association, which represents optometrists, sent an update for members around the FTC proposal. The memo quotes Sharon Markowitz, an attorney, who recommended that doctors consider talking to a lawyer and submitting a FTC comment in opposition to the rule.

If all else fails, Markowitz said, one way to get ahead of the possible elimination of noncompete clauses is to improve employee loyalty by “increasing wages.”

The post Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements appeared first on The Intercept.


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