U.S. Moves to Bar Noncompete Agreements in Labor Contracts

Noam Scheiber, reporting yesterday for The New York Times:

The proposed rule would ban provisions of labor contracts known as noncompete agreements, which prevent workers from leaving for a competitor or starting a competing business for months or years after their employment, often within a certain geographic area. The agreements have applied to workers as varied as sandwich makers, hairstylists, doctors and software engineers.

Studies show that noncompetes, which appear to directly affect roughly 20 percent to 45 percent of U.S. workers in the private sector, hold down pay because job switching is one of the more reliable ways of securing a raise. Many economists believe they help explain why pay for middle-income workers has stagnated in recent decades.

Other studies show that noncompetes protect established companies from start-ups, reducing competition within industries.

I used to think of noncompete agreements as applying mostly to the tech industry, in the name of protecting trade secrets, but that bit about the practice trickling down even to sandwich shops is no exaggeration.

Friday, 6 January 2023