Noncompetes make the State of the Union

Last night, President Biden gave his 2023 State of the Union Address.

During that hour-plus speech, the President addressed a topic near and dear to my heart.

No, I’m not talking about cancer research, though that certainly is very near and dear to my heart. No, I’m also not talking about access to healthcare, though that is also near and dear to me. No, not the conflict in Ukraine, support for veterans and their families, affordable housing, the mental health crisis, protecting kids online, or social security either.

Okay, it’s something far less near-and-dear: the FTC’s proposed ban on noncompetes.

Yep. Noncompetes actually made their way into a State of the Union.

Here is what President Biden planned to say (and sort of said):

For example, 30 million workers had to sign non-compete agreements when they took a job. So a cashier at a burger place can’t cross the street to take the same job at another burger place to make a couple bucks more.[1]

Not anymore.

We’re banning those agreements so companies have to compete for workers and pay them what they’re worth.

Let me interpret that for you: 30 million2 contracts will be abrogated by regulatory fiat, despite that we really have no idea what the unintended consequences of such a ban would be on the economy, on trade secret protection, or on companies and employees who will be enmeshed in far more more-costly, messy, and protracted trade secret litigation. That of course helps no one but the lawyers. I highlight this as a very bad outcome — despite knowing that I am one of the lawyers who will greatly benefit from a ban. And the truth is that, while I am no fan of noncompetes, they do serve some very important purposes when used appropriately.

Another important thing to know is that these 30 million (or whatever the number actually is) contracts can’t be abrogated that easily. There are several Constitutional hurdles that would need to be overcome. Indeed, the FTC almost certainly does not even get out of the gate, as it very likely does not have the authority to issue a rule like the one it is proposing.

In that regard, the U.S. Chamber of Commerce has already vowed to challenge the FTC’s rule, which the Chamber views as just one more part of the FTC’s (improper) “Rule-a-Palooza” (as they and FTC Commissioner Christine Wilson call it).

Stay tuned.

And note that, given that Congress has returned to the fray, we may quickly find that the FTC’s rule is the tail wagging the dog.


*Thank you to Ben Fink and Lori Ehrlich for both texting me during the State of the Union to point out the Presidents reference to noncompetes! 



[1] The 30 million number is a very (very!) rough guesstimate from a study conducted several years ago, though there have been different studies with different numbers. An early study found 18 percent of people have noncompetes, which translated to approximately 23 million. Still quite a few, but, the point is that we keep seeing numbers and conclusions touted as “fact,” when (in fact) they are not. No one actually has any real sense of what the actual numbers are, much less the circumstances surrounding the particular agreements, and which ones are legitimate versus which are overreaching.

For a bit more, as explained in a report by the Hamilton Project:

15.5 percent of workers responded they were currently covered by a non-compete clause. This figure is similar to Starr, Bishara, and Prescott’s (2017) estimate before they made an adjustment for underreporting.

(Emphasis added.) At 15.5 percent, the actual number was closer to 20 million.

Of course, the numbers are all outdated, as they are from several years ago, whereas the use of noncompetes (at least if the number of reported decisions is any indication) has decreased as a percentage of the workforce. The chart shows that the cases are roughly level; using that as a proxy, and recognizing that the workforce has increased, the takeaway may be that noncompete use has diminished in the past decade. But, who really knows? No one. Which is precisely why we need more research before taking such a huge leap of faith based more on outrage over the abuses, than data concerning the actual, provable impacts.

[2] Focusing on the rhetorical use of “cashier[s] at . . . burger place[s],” CNN’s fact checkers had this to say:

Facts First: This is partially true. Millions of rank-and-file employees and independent contractors, in addition to business executives across industries, have signed non-compete agreements that critics say suppress competition, wages and entrepreneurship. The Federal Trade Commission in January proposed a rule to ban employers from imposing those agreements on workers and to rescind all existing noncompete agreements. But are burger chain workers really subject to those noncompete agreements? It’s not likely – not anymore, anyway.

An investigation in Washington state in 2017 revealed that several fast-food chains, including Arby’s, Auntie Anne’s, Buffalo Wild Wings, Carl’s Jr., Cinnabon, Jimmy John’s, and McDonald’s, had been enforcing no-poaching rules that prevented employees from moving between franchises within the same chain – not, as Biden suggested, between rival chains. By 2018, all those chains agreed to end their no-poach practices at roughly 25,000 restaurants nationwide.