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On Noncompete Clauses

Here’s a letter to someone who has written to me now several times asking – as he put it in his latest missive – “why do you libertarians object to government reining in private economic power?”

Mr. S__:

Thanks for e-mailing your endorsement of Chris Griswold’s June 19th piece on private economic power (“Freedom from Economic Fear”). My assessment of his piece is far more negative than yours.

Griswold’s errors are many, not the least of which is his tendentious case against noncompete clauses. A prominent part of his case consists of favorably quoting Lina Khan’s account of a woman who allegedly signed such a clause “unwittingly” and was then sexually harassed on the job. One doesn’t need a law degree from Yale to know that no contract signed under the conditions implied by Khan’s account – namely, fraudulent misrepresentation or duress – is enforceable. Such “contracts” are already unlawful and have been for ages. Nor does one need a J.D. to know that sexual harassment is illegal and not rendered otherwise even if the victim legitimately signed a noncompete clause.

Featuring this inapposite, worse-than-anecdotal example in his case against noncompete clauses suggests the weakness of this case – a case made no stronger by Griswold’s favorable references to Marco Rubio’s remonstrations against such clauses.

Rubio, like Khan, includes among his objections to noncompete clauses allegations of workers being (as described by Griswold) “often pressured, deceived, or otherwise misled into signing.” Again, because Anglo-American contract law does not enforce contracts entered into under such conditions, there’s no need to outlaw such contracts; they’re already outside of the law.

As for noncompete clauses entered into legitimately, it’s impossible to see the merit of Rubio’s and Griswold’s objection. Rubio and Griswold think they successfully indict noncompete clauses by insinuating that the options open to workers who refuse to sign such clauses are far worse than are the options that open up to workers who sign them. But only a nanosecond of serious thought reveals that, if Rubio and Griswold are correct about these options, then opportunities to enter into noncompete clauses are an enormous blessing for workers who sign them rather than a curse. By signing such clauses, these workers punch their tickets to a condition of better opportunities. That Rubio and Griswold (and Lina Khan) think that workers would be made better off by being denied access to such tickets is baffling.

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