To understand why the Federal Trade Commission feels so empowered to declare war on American business, it is helpful to look at how progressive organizations are pushing the Biden Administration to be even more extreme.
Exhibit A is a May 30 letter from eleven such organizations to the Chairman of the White House Competition Council. This “Gang of 11” urges the President to issue a sweeping executive order that would prohibit noncompete agreements at financial institutions, airlines, railroads, nonprofit healthcare systems, and many other businesses.
Such an executive order would have greater ramifications than the President’s audacious student loan forgiveness executive order. Simply put, it would change the nature of the employee-employer relationship, while providing rocket fuel to the FTC as it pursues greater business interference.
The Gang of 11 letter makes clear that they want the executive order to supplement similar efforts in a far-reaching proposed FTC regulation to ban noncompete agreements as “the FTC’s jurisdiction does not extend across the entire economy.”
Noncompete agreements are contracts between workers and their employer. They are entered into voluntarily and sometimes professionals obtain the advice of counsel to make sure they understand the terms and are appropriately protected. There are already extensive state laws on noncompete agreements to prevent abuses. Courts also do not look kindly on overly restrictive agreements.
Noncompete agreements mean companies will be more willing to invest in employees’ education and to share sensitive information with them. They break down barriers of cooperation and lead to innovation and problem solving, creating sizable opportunities for companies and their employees. Technology and other research and development sectors have long used noncompete agreements as part of brisk and successful growth strategies.
The U.S. Chamber of Commerce conducted a survey about noncompete agreements which the Biden Administration would be well advised to study. Key findings include:
- 78 percent of employers offer additional compensation that covers the span of the noncompete agreement or longer. As such, sensitive information is safeguarded, and former employees continue to receive financial support.
- 67 percent of respondents said a near-total ban on noncompete agreements would lead to reduced sharing of information and lower compensation.
- When controversies arose over an employee joining a competitor, nearly half the time a compromise was reached that “allowed both the employer to protect their interests and the employee to enter into new employment opportunities.”
While the signers of the May 30 letter clearly want to extend the reach of the FTC’s noncompete agreement proposal, there are likely other motivations for the letter. This includes bucking up the FTC which has come under withering scrutiny from Congress and had a string of court losses.
At least two of the groups are close to FTC Chair Lina Khan. These are the Open Markets Institute, where Chair Khan previously worked for seven years and the American Economic Liberties Project, whose founder was hired by Chair Khan as a Special Adviser in March 2023.
Meanwhile the FTC continues to run amok in many ways. It is obstructing mergers that will strengthen U.S. businesses and help consumers, while also collaborating with foreign regulators in ways that will hurt American business. Its professional staff has been exiting in droves and it lacks any Republican representation on what is supposed to be an independent, bipartisan commission.
The Biden Administration should dismiss the Gang of 11’s request out-of-hand and urge the FTC to withdraw its proposed rule on noncompete agreements.
