The White House indicated Thursday that it was planning new regulations targeting “non-compete” clauses, under which workers agree to not work for competitors should they quit, get fired or be laid off.
The administration argues that such contractual agreements create unnecessary barriers to workers getting better wages.
“[I]n the next few months, we’ll take a long, hard look at specific barriers that are holding down workers’ wages. We’ll visit with workers, business executives, labor leaders, advocacy groups, and economic and legal experts to get the best ideas about how we can make the labor market more competitive so that workers can thrive. Our goal is to put forward a set of best practices and call to action for state legislators to make progress on reforms to address the misuse of non-competes,” said Vice President Joe Biden in a statement.
Non-compete clauses are used by employers in competitive labor markets to keep workers from leaving and working at rivals. Workers are obligated to sign contracts in which they agree top not to do similar work for another company for a set period of time after they are no longer with their original employer.
“They can make sense when a worker has trade secrets or intellectual property in which the employer has invested. But they make no sense when applied to healthcare workers, retail and restaurant employees, and other low wage employees. All they do is limit opportunity and shackle people to an employer who will have less incentive to give a raise to retain them,” said Ross Eisenbrey, vice president of the Economic Policy Institute, a liberal think tank.
The Treasury Department estimates that 18 percent of workers overall and 15 percent of college-educated workers are currently subject to these clauses. An estimated 37 percent of workers have been subject to a non-compete clause at some point in their professional lives. The causes can typically range from a few months to as long as two years.
The administration argues that the clauses unfairly hold down worker wages since they limit the workers’ flexibility to choose where they work. The effect appears to be modest, however, as Treasury said the in areas where clauses are vigorously enforced, wages fell by just 1.4 percent.
Laws on non-compete contracts vary by state, though all states allow some form of them. Idaho restricts them to “key employees” while Oregon courts will void them if the worker’s prior compensation was below the median wage for a family of four.
