U.S. Moves to Bar Noncompete Agreements in Labor Contracts – The New York Times

Defenders of noncompetes argue that employees are free to turn down a job if they want to preserve their ability to join another company, or that they can bargain for higher pay in return for accepting the restriction. Proponents also argue that noncompetes make employers more likely to invest in training and to share sensitive information with workers, which they might withhold if they feared that a worker might quickly leave.

At least one study has found that greater enforcement of noncompetes leads to an increase in job creation by start-ups, though some of its conclusions are at odds with other research.

Dr. Starr said that noncompetes did appear to encourage businesses to invest more in training, but that there was little evidence that most employees entered into them voluntarily or that they were able to bargain over them. One study found that only 10 percent of workers sought to bargain for concessions in return for signing a noncompete. About one-third became aware of the noncompete only after accepting a job offer.

In a video call with reporters on Wednesday, Ms. Khan said that she believed the F.T.C. had clear authority to issue the rule, noting that federal law empowers the agency to prohibit “unfair methods of competition.”

But Kristen Limarzi, a partner at Gibson, Dunn & Crutcher who previously served as a senior official in the antitrust division of the Justice Department, said she believed such a rule could be vulnerable to a legal challenge. Opponents would probably argue that the relevant federal statute is too vague to guide the agency in putting forth a rule banning noncompetes, she said, and that the evidence the agency has on their effects is still too limited to support a rule.

At the helm of the F.T.C. since last year, Ms. Khan has tried to use the agency’s authority in untested ways to limit the power and influence of corporate giants. In doing so, she and her allies hope to reverse a turn in recent decades toward more conservative antitrust law — a shift that they say enabled runaway concentration, limited options for consumers and squeezed small businesses.

Ms. Khan has brought lawsuits in recent months to block Meta, Facebook’s parent, from buying a virtual reality start-up and Microsoft from buying the video game publisher Activision Blizzard. Both cases employ less common legal arguments that are likely to face heavy scrutiny from courts. But Ms. Khan has indicated she is willing to lose cases if the agency ends up taking more risks.

Ms. Khan and her counterpart at the Justice Department’s antitrust division, Jonathan Kanter, have also said they want to increase the focus of the nation’s antitrust agencies on empowering workers. Last year, the Justice Department successfully blocked Penguin Random House from buying Simon & Schuster using the argument that the deal would lower compensation for authors.

One question looming over the discussion of noncompetes is what effect banning them may have on prices during a period of high inflation, given that limiting noncompetes tends to raise wages.

But the experience of the past two years, when rates of quitting and job-hopping have been unusually high, suggests that noncompetes may not currently be as big an obstacle to worker mobility as they have traditionally been. Partly as a result, banning them may not have much of a short-term impact on wages.

Instead, some economists say, the more pronounced effect of a ban may come in the intermediate and long term, once the job market softens and workers no longer have as much leverage. At that point, noncompetes could begin to weigh more heavily on job switching and wages again.

“Doing something like this is a way to help sustain the increase in worker power over last couple of years,” said Heidi Shierholz, president of the liberal Economic Policy Institute, who was chief economist at the Labor Department during the Obama administration.