The Federal Trade Commission in Washington.
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ANDREW KELLY/REUTERS
The Biden Administration’s rule by regulation is gaining speed, and the latest example is the Federal Trade Commission’s plan to ban non-compete employment agreements. In a flash, Lina Khan’s bureaucracy will rewrite labor contracts for 30 million workers.
The FTC’s proposed rule is an air kiss to Big Labor, which demanded that the agency ban non-competes in 2019. Unions want opposition to non-competes as a tool in their organizing kit. Ms. Khan tweeted that one in five U.S. workers is currently “bound” by a non-compete clause that prevents them from switching jobs and thus keeps wages lower than they would be if the employees moved freely.
But job mobility in America hasn’t suffered despite non-compete clauses. The biggest threat to rising wages is inflation, not employment clauses. Companies use non-compete clauses to protect their intellectual capital, which is often between the ears of its employees. Tech firms in particular often pay higher compensation, including stock grants, in return for non-competes.
Non-competes can encourage innovation in firms because employees are less likely to take secrets to a rival. In a recent paper considering employment contracts, the Global Antitrust Institute at George Mason noted that a ban on non-competes risks harming productivity and “dampening the incentives to invest in trade secrets” or “disseminate firm-specific knowledge” among a firm’s workforce.
The FTC is stretching its authority here, perhaps past breaking the law. Chair Khan cites Section 5 of the Federal Trade Commission Act, which allows the agency to police “unfair methods of competition.” But “unfair methods” is typically used for individual cases, not for a blanket ban or policy-making.
In 2015 a bipartisan group of FTC commissioners issued a statement saying that Section 5’s power against unfair competition should only be used in cases of…
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