It's a truism that capitalists don't like competition — especially for workers. In recent decades, American companies have tried to limit this problem by requiring millions of employees to sign contracts prohibiting them from moving to rival firms.
The absurd and harmful proliferation of the practice is well illustrated by a recent survey that found 30 percent of the nation's hair salons required stylists to sign noncompete agreements.
A few states, notably California, have long restricted the use of the tactic. And in 2008, Oregon passed an innovative law that barred noncompete agreements for most workers, including those making less than the median income for a family of four — $97,631 in 2018.
A new study finds that the Oregon law made a big difference for workers, increasing both how often they changed jobs and how much they got paid.
There is no single explanation for the stagnation of workers' income in recent decades, but a key reason is that negotiating power shifted from workers to employers. The rise of noncompete agreements is both a symptom, demonstrating the power of employers to dictate terms, and a cause, undermining the ability of workers to obtain a larger piece of the pie.
Defenders of the practice say it encourages companies to make investments, for example in employee training, since the company is more likely to reap the benefits. They also insist that workers are compensated for the loss of bargaining power with higher wages or greater job security. Indeed, some experts have asserted that the elimination of noncompete agreements would cause wages to fall, because workers would no longer be paid for signing.
The Oregon study shows that this theoretical model of labor markets bears little relationship to the lived reality. After the law took effect, job hopping increased by as much as 18 percent — and wages for workers no longer bound by noncompetes rose by as much as 21 percent.
Put plainly, the old rule allowed employers to suppress their workers' pay.
Among the reasons: Workers are often required to sign noncompete agreements after they accept a job, when they no longer have as much leverage to negotiate. Workers also may not understand the terms, nor anticipate the consequences for their own careers.
There may be some case for allowing corporations to negotiate noncompete agreements with top executives or other particularly valuable employees — although states would do well to consider the example of California, where the absence of noncompetes has contributed to the rise of Silicon Valley. But allowing broad use of noncompetes harms workers.
A growing number of states have followed Oregon's example in the past few years. Illinois went first, in 2016, banning noncompete agreements for workers making up to $13 an hour. Six more states have since passed new laws, ranging from Maryland, which drew the line at $15 an hour, or about $31,200 a year, all the way to Washington, which rendered noncompete restrictions unenforceable for workers making less than $100,000 a year. (The other states with new laws are in New England: Maine, Massachusetts, New Hampshire and Rhode Island.)
A Republican senator, Marco Rubio of Florida, introduced federal legislation in January banning noncompete agreements for low-wage workers. In March, a bipartisan group of six senators, including Mr. Rubio, requested a Government Accountability Office study of the agreements, writing there was "no good reason" to let companies bind the hands of low-wage workers.
The Rubio bill needs to be broader. It would protect only workers who are eligible for overtime pay under federal law — mostly, employees earning less than $23,360 a year — a significantly lower threshold than in the Oregon law. It also needs stronger penalties for companies that break the rules. And Congress should consider protections for workers who may justifiably be subject to noncompete agreements, such as requiring any deal to be part of the job offer.
But the bill nonetheless offers a rare opportunity for bipartisan agreement. Congress should act to protect the freedom of American workers to seek jobs in an open marketplace.
— The New York Times