Competing against competition

Although the Federal Trade Commission voted to ban non-compete agreements nationwide this week, the argument is far from over.

The commissioners voted 3-2 Tuesday to strike down most non-competes in the interest of “protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.”

The action is headed to court, with the U.S. Chamber of Commerce and other business organizations ready to go; and a judge might very well rule that the FTC got ahead of itself by acting without a directive from Congress.

The FTC says 18 percent of workers, or 30 million people, are covered by non-competes, depressing wages and startups. It also estimates that new patents would increase under the new rule, from 17,000 to 29,000 per year on average, presumably because companies will look to patents to protect proprietary technology and design rather than curbing the mobility of their talent.

A federal study last year found that 98 percent of private companies in the U.S. require executives and managers to sign these agreements, but NCA use has expanded to include even some hourly workers. It also holds down wages and leads to hires of less experienced workers, with deleterious salary affects suffered by women and people of color in particular.

The plaintiffs in the coming lawsuit may well prevail on their process argument, and by keeping the debate in the arena of congressional politics they could fend off NCA reform indefinitely. Bipartisan efforts in Washington have, after all, fallen one after another. About a dozen states have acted to prevent non-competes for low-wage workers while three have banned them altogether.

Technologies exist to protect proprietary information and business thrives even in states that have barred non-competes. Non-disclosure agreements and other means of protecting confidentiality and client relationships are not endangered.

Large private employers have simply grown accustomed to disciplining the workforce instead, and they won’t surrender that policy without a fight.