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Joe Biden Wants Noncompete Clauses To Be Banned
Joe Biden

Joe Biden Wants Noncompete Clauses To Be Banned

President Joe Biden has railed for years against the proliferation of noncompete clauses in employment, which can lock workers into jobs and lower wages; he criticized them while serving as Vice President under President Barack Obama, and he called for a federal ban on them during his presidential campaign last year.

Now, as president, he's taking his first stab at them.

On Friday, Biden will ask the Federal Trade Commission to issue new rules limiting the use of noncompetes as part of a sweeping executive order he will sign to combat monopolies. The broader order will call for new scrutiny of previously approved mergers, the restoration of net neutrality rules, access to cheaper prescription drugs, and reform of the antitrust laws.

The crackdown on noncompete clauses is intended to increase competition among employers and restore workers' bargaining power in the labor market. Labor economists argue that limiting or prohibiting such clauses will give workers more mobility and, ultimately, higher earnings by allowing them to sell their work to the highest bidder.

“If you’re a nonunionized worker, 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 frequently sign noncompetes when they start a job, giving up the right to work for a competing business for a set period of time after their employment ends. Noncompetes were traditionally used to protect closely guarded business secrets in high-income fields, but they have spread so widely in recent years that they now affect all income levels, including low-wage service work.

According to Stardia, in 2014, the sandwich chain Jimmy John's required new hires to sign paperwork prohibiting them from working at any sandwich shop within three miles of a Jimmy John's location for two years after leaving. The Jimmy John's noncompete prompted mockery and criticism from policymakers who said the practice had gotten out of hand.

Noncompete clauses are only “agreements” in theory in many cases, because failing to sign one means losing the job.

Ryan Nunn, an assistant vice president at the Federal Reserve Bank of Minneapolis who has studied the issue, stated that evidence has emerged in recent years showing that noncompetes depress wage growth, and that workers can be harmed by noncompetes whether or not they are legally enforceable, because workers may not know their rights.

If you are a nonunionized worker, your only source of power with your employer is the implicit threat that you will quit and seek employment elsewhere.

The Economic Policy Institute's Heidi Shierholz

People were aware of CEOs and high-wage workers [signing them], but I don’t think they realized how widespread they were for lower-wage workers,” said Nunn, who clarified that he was not speaking on behalf of the Fed.

A coalition of progressive and labor organizations, led by the Open Markets Institute think tank, has urged the FTC to prohibit the clauses through rule-making.

As of Friday morning, the White House had not released the text of the planned executive order, though White House press secretary Jen Psaki had stated earlier in the week that it would “call on the FTC to adopt rules that curtail noncompete agreements.” Because the FTC is an independent agency that enforces antitrust laws, it was unclear how binding such an order would be.

But, by appointing the progressive antitrust legal scholar Lina Khan as chair, Biden has already dramatically reshaped the commission, and the commission has signaled that it will take a more active role in rule-making under its 3-2 Democratic majority.

According to Karla Walter, director of the American Worker Project at the Center for American Progress, a left-leaning think tank, while some states have already begun addressing the noncompete issue with their own restrictions, the federal government must take the lead.

“The Biden administration is really leaning into the issue, which is good for workers,” Walter said, adding that “unfair competition not only harms workers, but it also chills entrepreneurship.”

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