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Don’t Ban Noncompete Clauses

Here’s a letter to the Wall Street Journal:


Although its author doesn’t realize it, your report “FTC Plan to Ban Noncompete Clauses Shifts Companies’ Focus,” Jan. 17) offers evidence of why a ban on noncompete clauses would do more harm than good. The evidence is that the worker featured in the report, Daniel Bachhuber, refused a job that required he sign a noncompete clause. He had and took other employment options.

If Mr. Bachhuber’s experience is any indication (and why wouldn’t it be?) U.S. labor markets are competitive. And in competitive labor markets, workers will agree to contractual terms that restrict their options only if employers provide adequate compensation for such agreement. This compensation can take the form of higher pay, more fringe benefits, greater job security, or enhanced training. But whatever form this additional compensation takes, workers who agree to restrictions such as noncompete clauses obviously value this compensation more highly than they value having no contractual restraints on their future employment options. Banning noncompete clauses would thus make these workers worse off, as they’ll be denied the valuable opportunity to ‘sell’ to employers restrictions on their future employment options.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030