Apr

25

FTC Announces Rule Banning Noncompetes

Today, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

Kim Zussman writes:

This will also help knock down the value of businesses. Mike sells his business to Mary. One week later Mike opens the same kind of business one block away, and contacts all his old customers. How much should Mary pay to buy Mike's business?

H. Humbert comments:

Certainly has more merit than trying to destroy Amazon or preventing Kroger from buying Alberson's, her two other favorite busybody activities. Not a very libertarian thing to do, but noncompetes are often used against many powerless people as a nakedly aggressive move.

The argument she uses is that Silicon Valley where noncompetes are illegal beat out Boston Route 128, and is doing just fine in terms of starting new businesses. Whether it's due to noncompetes or the weather is anybody's guess. The other argument is that noncompetes are used to restrain security guards or sandwich shop workers from getting employment across the street, cases where intellectual property or customer lists are clearly not involved.

Pamela Van Giessen adds:

There is another downside to this. When companies lay off people, especially middle and senior management, they give them attractive parting gifts that are contingent on non-compete agreements. E.g, ABC co lays off senior manager, pays them up to 1 yr salary plus health benefits, etc. but the caveat is that former senior manager doesn’t work for a competitor for x period of time. These workers already have the right to decline the parting gifts if they don’t want to sign the non-compete. Now there is almost no incentive for companies to provide compensation to the people they lay off since they can’t bargain for a non compete. That sucks for employees who can now be laid off with pretty much nothing. I’d say this is a loss for employees and a win for big companies. Thank you to Joe Biden & co.

William Huggins responds:

let's not oversell this - firms seek out non-compete agreements for THEIR benefit, not that of employees. strange that an erosion of their position would somehow strengthen them but war is peace and ignorance strength?


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