As a recent headline put it, “Clock is Ticking on New York's Non-Compete-Ban Bill.” Indeed, a ban on worker non-compete agreements that the New York State legislature approved over the summer has yet to be addressed by New York Gov. Kathy Hochul. She has until the end of the year to sign it, veto it, or propose what are known as “chapter amendments,” which are changes to the bill text that the legislature agrees to make in exchange for the governor’s signature. With Hochul needing to make a decision sooner rather than later, corporate interests in New York have fired up a seven-digit ad campaign in an attempt to convince her to veto the bill, or at the very least limit its reach. (Hochul has previously called for a non-compete ban only for lower-income workers.) Those same interests are also, I’ve heard, working behind the scenes to make their case to Hochul and her staff. The campaign is kind of hilarious, but also, and far more importantly, deeply dishonest, warning of dire economic consequences should a ban on non-competes go into effect. But studies and common sense show that the likely effect is the exact opposite: Banning non-competes is good for workers, businesses, and the overall economy. New York is an important case study for the advocates and lawmakers who will surely move on non-competes — and other forms of contracts that restrict workers’ rights of movement — in the future. As a refresher, non-compete agreements prevent employees from working for a competitor to their current employer, usually within a certain geographic range and for a certain amount of time. They bind an estimated one in five workers in the U.S., and are found across a host of industries, from nursing to retail to fast food to janitorial services, and on and on. While these agreements in the past typically only applied to executives and the like, corporations have been pushing non-competes down the income scale, leading to increasing recognition in recent years that they harm workers and the wider economy by reducing wages and quashing small business creation. To that end, the Federal Trade Commission is currently working on a broad ban of non-compete agreements and other restrictive contracts that function like non-competes, and Minnesota and New York both approved state-level bans this year. Some states, such as California and Oklahoma, meanwhile, have rendered non-competes unenforceable — meaning courts just throw them out if businesses try to enforce them — for more than a century. The ad campaign aimed at Hochul, which you can watch here or visit the website for here, is paid for by the Public Policy Institute of New York, which is affiliated with The Business Council of New York State, a trade group that represents the largest corporations in the state. The Business Council goes to great lengths to claim that it represents small businesses too, but only the likes of IBM, Citigroup, and JP Morgan Chase make it into its promotional materials, according to my quick scan. The Public Policy Institute’s leadership includes representatives from Pfizer, Chevron, Corning, and IBM, and no one from a small business. So that’s who we’re dealing with here, in the push to ensure workers continue to be subjected to restrictive contracts tying them to their current employers. First, I want to address the funny part of the ad campaign: For some reason, these corporate gurus think re-branding non-compete agreements as “anti-competition agreements,” a phrase they use repeatedly, is some meaningful and positive change. Either way, of course, the problem is still right there in the name: “Anti-competition,” i.e., they do not want to compete for workers, because competition gives workers leverage. Whichever pollster fleeced this crew out of the money that went into testing that particular name change deserves some kind of award. Now on to the substance: The ad campaign claims banning non-compete agreements will “shatter our economy,” “crippling business’ ability to fuel innovation,” and “risk seeing our jobs flee to other states.” Quite literally none of these claims are true. (Let’s leave aside the turn of phrase that makes it seem like jobs are sentient beings that will grow legs and depart the state due to new laws being enforced.) Conveniently, as part of its federal rule making, the FTC assessed and wrote up findings from the relevant research on the effects of non-competes. In there, you can easily find its conclusions that banning non-competes will result in wages going up by billions of dollars due to workers’ increased bargaining power, and that there is no reason to believe eliminating non-competes will harm job creation, because it will enable more small firms to start up. And it will help the health care sector, specifically, because nurses, lab techs, and even doctors, will be able to move around freely, launch new practices, and better their lives while continuing to serve their patients. Again, several states have had these bans on the books for more than a hundred years, and no one thinks Oklahoma, California, or North Dakota have been chasing away new businesses for a century. The innovation claim made in the ad is perhaps the most important one. Again, contrary to the ad’s assertion, the FTC found that “The weight of the evidence indicates non-compete clauses decrease innovation.” That finding makes intuitive sense! Workers who are not bound by a non-compete can leave their jobs and form their own companies, bringing new ideas and products into the market, and keeping incumbent firms honest. The FTC estimates that a non-compete ban would double the number of firms started by former workers in a particular industry. For a real-world example of this, look to California, where non-competes have been unenforceable since the late 1800s, and which has been the epicenter of American innovation (for good and for ill, to be fair) for decades now. There’s a good case to be made, backed by historians, that Silicon Valley and the products it has produced flourished precisely because workers couldn’t be bound to their employer by a non-compete, but could go form their own firms, and bring their friends with them. Massachusetts, in contrast, was also an early hub of tech and computing innovation, but allowed the vigorous enforcement of non-competes and, well, here we are today, with Silicon Valley a household name. So the corporate-backed campaign to convince Hochul to veto or water down a non-compete ban is straight up wrong on the facts and the history: There’s no reason to believe that its dire warnings of economic ruin will occur. I trust most normal people understand that simply giving workers the freedom to take a new job — or use a job offer to leverage a raise out of their current employer — is not the sort of thing on which economic armageddon is built. Instead, without non-competes holding them back workers will gain bargaining power, new firms will emerge, and prices will ultimately go down due to more competitors entering the marketplace. The large corporations backing this absurd campaign know that saying the truth — “we want non-competes to exist so we can undermine wages and working conditions, and prevent employees from leaving to start their own small businesses we might have to compete with” — isn’t a marketable case, so they’re making up some garbage and spending a bunch of money throwing it at the wall to see if it sticks. It’s important that this corporate-backed campaign be called out for what it is, not only because the New York bill is a good and important one, but because this is going to be the playbook across the country for any advocate or elected official who wants to work on freeing workers from restrictive contracts, so folks need to know how to push back. Hochul should ignore the noise — which has a lot of money behind it, but very few facts — and sign the bill. And other states should move their own bans, joining those few states that have had it right and reaped the benefits. SHAMELESS SELF-PROMOTION: I moderated a great virtual event this week on how states can challenge corporate power in the health care industry, featuring keynote remarks from Minnesota State Sen. Erin Murphy. You can watch it here, and read the new American Economic Liberties Project policy toolkit, “Tools to Challenge Big Medicine: A Guide for State Lawmakers,” here.  |
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