Always or Almost Always Anticompetitive? The Global Antitrust Institute’s Comment on the FTC’s Proposed Rule Banning Non-Compete Clauses in Employment Contracts

Abstract

The Global Antitrust Institute (“GAI”) submits this comment to the U.S. Federal Trade Commission (“FTC”) on the FTC’s Notice of Proposed Rulemaking (“NPRM”) on noncompete agreements (“NCAs”) in employment contracts, which promulgates a Non-Compete Clause Rule that would ban virtually all NCAs. There is no reliable support in either economic theory or empirics for the proposed categorical ban on NCAs—even if such a ban were limited to NCAs involving low-wage workers. The theories and evidence for NCA effects fall far short of meeting the Supreme Court’s standard that a practice be “always or almost always” anticompetitive to merit per se treatment. Applying the more flexible rule of reason approach to the facts of particular cases—as is appropriate for vertical restraints such as NCAs—is more likely to deliver benefits to both workers and consumers, on net and in the aggregate. The NPRM’s preliminary computations of the potential benefits of a ban to the contrary are deeply flawed, relying on a problematic out-of-sample forecast based on estimates from a single empirical study. Importantly, any sweeping ban on NCAs would likely have unintended consequences, hurting both workers and consumers.

Keywords: labor contracts, non-compete clauses, monopsony, vertical restraints, contracting externalities, natural experiments, statistical inference, calibration, training, human capital, trade secrets

JEL Classification: C15, C18, D43, D62, D86, J23, J24, J38, J41, J42, J48, J62, J68, K21, K31, L12, L13, L14, L41, L42