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Monday, January 25, 2021

Lemley & Lobel Day One Report on NonCompete Policy

Noncompete agreements prohibit employees’ labor mobility rights, depress wages, and reduce entrepreneurship. In a Day One proposal, Mark Lemley and I encourage the new admin to ban noncompete agreements and educate the public on mobility rights.

Read the full report here. 

Report Summary:

Competitive job markets are critical to the success of the national economy, spurring innovation while boosting wages and labor equality. The moment is ripe for the new administration to foster competitive job markets by banning noncompete agreements (noncompetes). New empirical evidence shows that noncompetes have harmful effects on job mobility, wages, competition, entrepreneurship, and equality. Yet noncompetes are widely included in employment contracts. And inconsistent state rules on noncompetes (and their enforcement) have led to employee confusion and disputes among state courts.

 

A tough, consistent federal strategy to eliminate noncompetes is needed. Several recent federal and state initiatives addressing noncompetes have created momentum that the new administration can build on to rapidly address this issue. The Biden-Harris administration should (1) adopt a federal ban on noncompetes, (2) actively educate the public about their labor-mobility rights (and actively support those rights), and (3) take proactive steps to ensure compliance with labor-mobility policy. Specific steps the new administration could consider include:

  • Barring noncompete agreements through legislation or executive order. If barring all noncompetes is not yet feasible, a federal ban on noncompetes imposed on low-wage and unskilled workers would be a good first step.

  • Issuing executive orders that (i) restrict or eliminate government contracting with companies that use noncompetes; and (ii) require employers in states that restrict noncompetes not to sign noncompetes with employees in those states, and/or to give prominent notice of the unenforceability of noncompetes in those states.

  • Requiring employment contracts to include a notice about employees’ right to leave their employer.

  • Banning secrecy imposed by employers regarding salary information.

  • Requiring the Department of Labor, Federal Trade Commission, and Department of Justice Antitrust Division to collaborate to actively enforce laws and policies governing noncompetes nationwide.

 

Posted by Orly Lobel on January 25, 2021 at 03:42 PM | Permalink

Comments

The evidence is not at all mixed. Read the report and the most recent meta-reviews of the numerous emprical studies, by Evan Starr and many others - the evidence is consistent about the harms on wage stagnation, mobility , entrepreneurship, innovation, new jobs and economic growth, as well as the disproportionate harms on women and people of color - new studies showing these inequity effects. see for example - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3373184.

Posted by: Orly Lobel | Jan 26, 2021 2:15:18 PM

Douglas,

The president, can get some inspiration from the hereby executive order of Trump:

"Expanding Apprenticeships in America"

Here:

https://www.govinfo.gov/content/pkg/FR-2017-06-20/pdf/2017-13012.pdf

Even if there is no direct law, he can set and dictate principles and action in accordance simply(as done not once). But, it is hard to believe, that it wouldn't be challenged in federal courts. Chances are slim for it, to survive scrutiny of courts.

Posted by: El roam | Jan 26, 2021 2:12:10 PM

I don't want to get into the merits here. There seems to be good economic evidence on both sides of the debate. I haven't made up my mind yet.

I would like to ask what possible basis could there be for an executive order banning non-competes? What law would authorize such an order?

Posted by: Douglas B. Levene | Jan 26, 2021 1:27:05 PM

Prohibiting non-compete agreements makes investments in employees riskier, and indeed makes all investments riskier since it makes trade secrets easier to steal.

Posted by: Jr | Jan 26, 2021 11:44:37 AM

Important post or issue. One can understand the new momentum here and trying so to take advantage of the new administration. Yet, it is more than bit problematic here. I don't see how federal courts, would allow such overwhelming intervention in labor contracts. It does violate countless constitutional rights. Let alone, while such doctrine, runs against clearly established public policy:

Encouraging innovation. Protecting intellectual property rights. Too many times, it is the employers, who is the one who has invested money and resources in new or novel inventions of all sorts. He has the right in some cases, to limit such abuse of coming and learning new methods or alike, and then, cutting ties, and compete against the old employers, for negligible rise in salary.

Thanks

Posted by: El roam | Jan 25, 2021 5:05:46 PM

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