President Joe Biden has railed for years against the proliferation of noncompete clauses in employment, which can lock workers into their jobs and depress wages. He criticized them while serving as vice president under President Barack Obama, and he called for a federal ban on them during his campaign for the White House last year.
Now he’s taking his first swing at them as president.
On Friday, Biden will urge the Federal Trade Commission to issue new rules limiting the use of noncompetes, as part of a sweeping executive order he’s signing to curb monopolies. The broader order takes aim at corporate consolidation across industries, calling for fresh scrutiny of previously approved mergers, restoration of net neutrality rules, access to cheaper prescription drugs, and reform of occupational licensing rules, White House chief economic adviser Brian Deese told CNBC on Friday.
The crackdown on noncompetes is meant to increase competition among employers and restore workers’ leverage in the job market. Labor economists say limiting or banning such clauses will give workers more mobility and ultimately greater earnings, by allowing them to take their work to the highest bidder.
“If you’re a nonunionized worker ... basically your only source of power with your employer is the implicit threat that you can quit and take a job somewhere else,” said Heidi Shierholz, senior economist at the left-leaning Economic Policy Institute.
Workers often sign noncompetes upon taking a job, forgoing the right to work for a competing business for a certain period of time after their employment ends. They have traditionally been used to protect closely guarded business secrets in high-income fields, but they have proliferated so much in recent years that they touch all income levels, even low-wage service work.
As HuffPost reported in 2014, the sandwich chain Jimmy John’s was asking new hires to sign paperwork that forbid them from working at any sandwich shops within three miles of a Jimmy John’s location for a period of two years after leaving. The Jimmy John’s noncompete prompted mockery and criticism from policymakers who said the practice had gotten out of hand.
In many cases, noncompete clauses are only “agreements” in theory, since not signing one means not getting the job.
Ryan Nunn, an assistant vice president at the Federal Reserve Bank of Minneapolis who has studied the issue, said evidence has emerged in recent years showing noncompetes depress wage growth. He also noted that workers can be hurt by noncompetes whether or not they are legally enforceable, since workers won’t necessarily know their rights.
“If you’re a nonunionized worker ... basically your only source of power with your employer is the implicit threat that you can quit and take a job somewhere else.”
- Heidi Shierholz, Economic Policy Institute
“People knew of CEOs and high-wage workers [signing them], but I don’t think they had any sense of how widespread they were for lower-wage workers,” said Nunn, who clarified he was not speaking on behalf of the Fed. “It’s something that’s kind of taken people by surprise.”
A host of progressive and labor groups, led by the Open Markets Institute think tank, have been calling on the FTC to ban the clauses through the rule-making process.
The White House had not released the text of the planned executive order as of Friday morning, though White House press secretary Jen Psaki said earlier in the week that it would “call on the FTC to adopt rules that curtail noncompete agreements.” The FTC is an independent agency that enforces antitrust laws, so it wasn’t immediately clear how binding such an order might be.
But Biden has already dramatically reshaped the commission by appointing the progressive antitrust legal scholar Lina Khan as its chair, and under its 3-2 Democratic majority the commission has signaled it will take a more active role in rule-making.
Karla Walter, director of the American Worker Project at the Center for American Progress, a left-leaning think tank, said that some states had already begun tackling the noncompete problem with their own restrictions, but that it was important for the federal government to take a leading role.
“The Biden administration is really leaning into the issue, and it’s good for workers,” Walter said. “This unfair competition doesn’t just harm workers, but it also has a chilling effect on entrepreneurship.”