Breaking Barriers or Breaking Bad? The FTC’s Proposed Ban on Noncompete Agreements in Employment Contracts
- Author(s):
- Alexander Raskovich, Bruce Kobayashi, Tad Lipsky, Joshua Wright, John M. Yun
- Posted:
- 8-2024
- Law & Economics #:
- 24-22
- Availability:
- Full text (most recent) on SSRN
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.