Non-compete agreements, worker mobility, investment, empirical evidence, antitrust, federal ban, entrepreneurship, proposed rulemaking, cost-benefit analysis, Federal Trade Commission, low-wage workers
The U.S. Federal Trade Commission (FTC) has proposed a rule to declare virtually all non-compete agreements unfair methods of competition under Section 5 of the FTC Act and therefore, illegal. However, the empirical literature on non-compete agreements cited by the FTC in its Notice for Proposed Rulemaking (“NPRM”) shows mixed results on earnings, job creation, firm formation, entrepreneurship, training, investment, and firm value. Evidence in other current studies also does not support an economy-wide ban. The FTC concludes that the proposed rule would yield net benefits even though by its own admission it lacks the information necessary to conduct a cost-benefit analysis (“CBA”). The agency says alternatives to non-competes—such as non-disclosure agreements and nonsolicitation agreements—are comparably effective in protecting investments, but research on this question is virtually non-existent.
This Article argues that the FTC’s CBA in its NPRM is flawed and incomplete—assuming away uncertainty, ignoring costs, and failing to show that earnings effects are real, not transfers. Then, this Article proposes that—instead of implementing an economy-wide ban—regulators should focus on more targeted inquiries in industries or occupations where evidence is more conclusive, such as those involving low-wage workers.
Sarah Oh Lam, Thomas Lenard, & Scott Wallsten, Is a Ban on Non-Competes Supported by Empirical Evidence?, 29 Fordham J. Corp. & Fin. L. 1 (2023).