Ban Non-Compete Clauses : Democracy Journal

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A Journal of Ideas

Former-FTC Chairwoman Lina Khan testifies during the House Appropriations Subcommittee on Financial Services and General Government hearing in Washington, DC on May 15, 2024. (Tom Williams/CQ Roll Call via AP Images)

Non-competes” are clauses in employment contracts that forbid people from quitting their jobs and going to work for a competitor, or sometimes from working in their field at all, for a period of time. They are far more common than most people realize. Non-competes show up in contracts across nearly all walks of life, from retail and food-service workers to professionals, executives, and creatives. Many employees do not read their contracts carefully, or do not understand the implications when they do. The result is often genuine shock when workers discover that quitting for a better job may expose them to the threat of a lawsuit.

I once knew a literary agent who, thanks to a particularly nasty non-compete, was effectively forced to spend an entire year doing nothing at all. Her story is not that unusual. For many workers, non-competes function less like a narrow contractual term and more like a hidden restraint on their power to seek a better life.

Economic intuition and basic theory have long suggested that non-competes are bad for workers. What has changed in recent years is that a growing body of empirical evidence now shows that they are even worse than many critics previously believed—and may be costing employees, in the aggregate, hundreds of billions of dollars each year. A nationwide ban of some kind is one of the most straightforward pro-worker policies available. Yet existing efforts remain trapped in a quagmire that has little to do with the merits. The next administration needs to charge hard and ban most or all non-compete clauses nationwide, once and for all.

The basic case against the non-compete is both economic and moral. Quitting for a higher-paying job—or even credibly threatening to do so—is one of the primary ways workers increase their earnings over time. Job switching is also how undervalued employees find better matches for their talents, skills, and interests. It is how new firms get staffed, and how startups are born. Economists describe this process as “labor mobility,” but the underlying idea is simple and intuitive.

You do not need a deep grasp of economic principles to see that there is something fundamental about the right to quit and seek better work in one’s field. This is especially so in a country that supposedly prizes freedom—the ability to walk away from a job and pursue a better opportunity in your field seems like a core economic liberty.

Employers, for their part, like non-competes for an obvious reason: they keep labor costs down and reduce the risk of losing valuable employees. A firm can get away with lower pay, fewer benefits, or worse working conditions if its workers are contractually barred from leaving for a better job. In that sense, non-competes operate as a kind of private regulation of the labor market, one that tilts bargaining power sharply toward employers.

Unsurprisingly, employers rarely defend non-competes as mere cost-cutting devices. Instead, they emphasize better-sounding justifications. The most common is the fear that employees who leave will take secret information with them and share it with competitors. Another is that non-competes are necessary to protect investments in employee training. The idea is that if a firm spends time and money training workers, it deserves contractual protection against those workers taking their new skills elsewhere. Others suggest that employees who dislike non-competes should simply negotiate them away.

The problem with most of those defenses is that there are ways to protect legitimate employer interests that don’t involve stripping away the right to find a better job. The real issue is the reduction in pay. And over the past half decade, researchers have examined these claims closely, and the case against non-competes has become increasingly devastating.

An extensive 2024 study by three economists associated with the National Bureau of Economic Research attempted to measure the raw effects of noncompetes on wages. The study compared states where non-competes are broadly enforceable with the four states that ban them outright. The authors concluded that “rendering NCAs unenforceable nationwide would increase average earnings among all workers by 3.5% to 13.7%.”

If that estimate is even approximately right, the implications are enormous. With total U.S. wages last year at roughly $11.71 trillion, a nationwide ban would translate into between $400 billion and $1.6 trillion in additional earnings for workers each year. Those are not marginal gains.

Another study, particularly ingenious in its design, helps explain how these effects arise in practice. Columbia University economist Bo Cowgill and two co-authors conducted...