By TODD YOUNG
United State Senator
A recently released report by the U.S. Government Accountability Office (GAO) found the use of non-compete agreements is widespread throughout the U.S. labor market and restricts job mobility, lowers wages for workers, and discourages innovation.
GAO found that workers’ job mobility is reduced in states that are more likely to enforce non-compete agreements, and states that limit these clauses see increased wages, on average. The studies reviewed by GAO also showed that enforcement of non-compete agreements may restrain the creation of new businesses – especially in the tech and science industries – due to increased probability of litigation and greater costs of recruiting and hiring staff.
This GAO report confirmed what we have long known: the vast majority of non-compete agreements restrict job mobility and stifle economic growth.
Nearly 30 million Americans, in both high and lower earning positions across all economic sectors, have non-compete clauses in their employment contracts. This includes half of workers making $150,000 and above, and 14 percent of those earning $40,000 or less. Non-compete clauses cover numerous professions, from engineers to fast food workers to hairstylists.
Non-compete clauses are provisions in contracts stipulating that an employee may not leave one employer for another until a designated period of time has passed, sometimes up to two years. Oftentimes they also prohibit workers from taking jobs in or near the same city or region as their previous employer, or starting firms that could potentially compete with their former company.
Some employers will say these arrangements protect the interests of companies who do not want workers using trade secrets against them for a competitor. But the rampant overuse of non-compete clauses ultimately does far more harm than good for the overall economy. Employers have other tools at their disposal to protect sensitive information, including customer non-solicitation agreements and statutes on protecting trade secrets.
There is ample evidence that the pervasive use of non-competes is stifling the economic forces that I and many other lawmakers want to encourage – entrepreneurship, innovation, and wage growth.
The problem is especially acute in health care. The contracts of 90 percent of physicians include non-compete clauses. When doctors are forced to relocate to a new city to find work, patients have to drive long distances to keep seeing their physician or are forced to find a new provider. The shortage of health care providers is already of great concern to rural and underserved communities, and limiting the mobility of physicians is counterintuitive.
Restricting any worker’s ability to a leave one job – where they may be underpaid or feel unsatisfied – for another with better compensation and benefits robs Americans of their ability to reach their full potential while denying them better pay and benefits.
Non-compete clauses are also an obstacle to innovation. They make it difficult for fledgling companies to find and hire talent. States where non-compete clauses are legal have markedly fewer startups, and the new firms that do manage to launch are more likely to fail.
The evidence is persuasive: the overuse of non-compete clauses is harming the American labor force and undermining the free market that helps our workers flourish.
The Federal Trade Commission (FTC) recently proposed a rule that would make it illegal for an employer to enter into a non-compete with a worker. The proposed rule would also require companies to rescind existing agreements.
While the FTC is right to examine this issue, a better and lasting solution is for Congress to pass bipartisan legislation addressing the overuse of non-compete clauses. Sen. Chris Murphy (D-Conn.) and I recently introduced the Workplace Mobility Act to give workers the freedom to leave, strive, and spur much-needed economic growth. The bill would restore workers’ right to leave, greatly narrowing the use of non-compete clauses across the American economy.
Our proposal would require prospective employers to inform job candidates of restrictions on non-compete clauses, an important provision to prevent enforcement even in states where they are already illegal. Though our bill would limit the majority of non-compete agreements, it also creates sensible exceptions.
Ending the overuse of non-compete clauses and doing so through bipartisan legislation rather than executive rulemaking will empower workers and bolster our economy. Recent estimates indicate that simply eliminating non-competes would result in over $3 billion in additional earnings for American workers. And curbing non-compete clauses will have other notable economic benefits, such as lowering health care costs by $150 billion per year.
We need to free the vast majority of American workers from the burden of non-compete clauses. The freedom to leave, after all, is central to the right to rise. And there are few things more American than that.