Recessions happen when presidents overlook key problems
Freedom to Compete Act would benefit many American workers
For Americans earning modest wages, the ability to switch jobs provides a means of upward mobility. Yet about 30 million workers in the United States have had to sign noncompete agreements that prevent them from doing just this. A bill pending in the Senate would help fix this situation, and it deserves serious consideration by advocates and lawmakers.
Nearly one in five workers has had to sign an agreement that prohibits them from working for competitors or starting competing businesses. Because most hourly workers have little bargaining power and limited access to legal counsel that might help them negotiate with employers, such noncompete agreements are virtually impossible for workers to resist. These agreements are also particularly unfair because many of those bound by noncompete agreements could use a raise. The best research shows that about 14 percent of workers who earn less than $40,000 each year have indeed signed a noncompete agreement.
The Freedom to Compete Act, which was introduced by Republican Senator Marco Rubio of Florida, would fix this problem by preventing employers from binding hourly workers through noncompete agreements. By making it easier to switch jobs, the proposal would be beneficial for hourly workers. The lack of ability to move jobs for higher wages is a major problem in America. While many accounts might lead one to believe otherwise, tenure at the same job has risen over the last few decades for all workers over the age of 25. Job lock has contributed to slow wage growth for lower skilled workers. Undoing it by banning noncompete agreements for hourly workers would result in higher wages. As decades of research shows, workers who switch jobs almost always get a raise.
The proposal would also be fair to employers. Laws that allow employers to protect trade secrets would remain in force under the Senate bill, as would long standing legal precedents and statutes that allow them to seek reimbursement for employee benefits like college tuition. In any case, most of the workers covered by the proposal are people who make sandwiches, stock shelves, and drive trucks. They rarely receive plush benefits or have a deep understanding of the inner business workings.
Just as importantly, an end to noncompete agreements would make the default system in the United States of "at will" employment, in which employers can dismiss employees at any time for any legal reason unless a contract specifies otherwise, a two way street. This would blunt the growing efforts to move toward employment systems like those used in France, which make firing underperforming workers very difficult.
The proposal by Rubio does not solve every problem with noncompete agreements, which are also unfair to skilled workers with innovative entrepreneurial ideas. Indeed, California emerged as a technology mecca in part because noncompete agreements cannot be enforced there. But the situation is more complex for higher paid workers because they have more bargaining power than lower skilled workers to begin with.
In some cases, such as when a small business owner sells the business along with its client list, allowing a noncompete agreement can benefit everyone involved. But for most hourly workers, noncompete agreements serve no useful purpose and ought to be illegal. By banning noncompete agreements for this type of employee, the Senate bill is a big step in the right direction that would do enormous good for American workers.
Eli Lehrer is the president and cofounder of the R Street Institute.