Breaking Barriers or Breaking Bad? The FTC's Proposed Ban on Noncompete Agreements in Employment Contracts

ABSTRACT:

There is no reliable support in either economic theory or empirics for the Federal Trade Commission’s proposed categorical ban on noncompete agreements (NCAs)—even if such a ban were limited to NCAs involving low-wage workers. The theories and evidence for NCA effects fall far short of meeting the Supreme Court’s standard that a practice be “always or almost always” anticompetitive to merit treatment as per se illegal. Applying the more flexible rule of reason approach to the facts of particular cases—as is appropriate for vertical restraints such as NCAs—is more likely to deliver benefits to both workers and consumers, on net and in the aggregate. The NPRM’s preliminary computations of the potential benefits of a ban to the contrary are deeply flawed, relying on a problematic out-of-sample forecast based on estimates from a single empirical study. Importantly, any sweeping ban on NCAs would likely have unintended consequences, hurting both workers and consumers.