US prohibits non-competition agreements in employment contracts

Ms Khan has filed lawsuits in recent months to stop Facebook’s parent company Meta from buying a virtual reality start-up and Microsoft from buying video game publisher Activision Blizzard. Both cases use less common legal arguments that are subject to scrutiny by the courts. But Ms Khan has indicated she is ready to lose business if the agency ends up taking more risks.

Ms Khan and her counterpart in the Justice Department’s antitrust division, Jonathan Kanter, also said they want national antitrust agencies to focus more on empowering workers. Last year, the Department of Justice succeeded in preventing Penguin Random House from buying Simon & Schuster, using the argument that the deal would reduce authors’ compensation.

A question that looms over the discussion of non-competition is what effect banning it may have on prices during a period of high inflation, since limiting non-competition tends to raise wages.

But the experience of the past two years, when quit and job switching rates have been exceptionally high, suggests that non-competition may not currently be as significant a barrier to worker mobility as it always has been. Partly for this reason, banning them may not have much short-term impact on wages.

Instead, according to some economists, the more pronounced effect of a ban could come in the medium to long term, once the labor market eases and workers no longer have as much leverage. At this point, non-competitions could start to weigh more heavily on job change and wages again.

“Doing something like this is a way to help sustain the increase in workers’ power over the past two years,” said Heidi Shierholz, president of the liberal Institute for Economic Policy, who was chief economist at the Department of Labor under the Obama administration.

David McCabe contributed reporting.

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