Karla Coté/Sipa USA via AP Images
Amazon Labor Union members in Schodack, New York, October 10, 2022
This article appears in the February 2023 issue of The American Prospect magazine. Subscribe here.
Left to its own devices, capitalism invariably demands a reversion to the mean—and by “mean,” I mean cruel, abusive, proprietary treatment of its workers.
Time was when American capitalism wasn’t left entirely to its own devices. During the three decades when the New Deal social contract was in place and fully a third of the nation’s workforce was unionized, the power that owners and employers wielded over those who did their work was partially reined in. By the mid-1970s, those constraints began to give way to the forces of business and finance; and with the coming of Reagan Republicanism to American governance a few years later, the modest countervailing power that workers had once exercised, with the government’s backing, to control aspects of their work lives was radically diminished.
The workers’ loss was threefold. They lost power, provision, and freedom.
The loss in power was chiefly the result of deunionization. In the half-century since corporate America ended its semi-toleration of unions, the share of private-sector workers who could bargain collectively for wages and benefits has declined from a quarter of the workforce to a bare 6 percent. Years of anti-labor court decisions hollowed out the National Labor Relations Act, whose threadbare remnants no longer offered any protections to workers who sought to unionize.
The loss of power was accompanied by a loss of provision. The federal minimum wage lagged further and further behind the cost of even penurious living. Save for brief intervals when the economy was close to full employment, workers’ wages stagnated in the absence of any way for workers to effectively bargain with management and in the presence of increasing low-wage competition from the low-wage employees and contract workers of multinational corporations—many of them American—in the developing world. Workers’ incomes also stagnated as companies labeled them independent contractors and gig workers rather than employees, not subject to minimum-wage laws or employer provisions for Social Security, nor the other social contracts of the New Deal.
And third, beginning in the 1990s, came the loss even of economic freedoms. Emboldened by relentlessly anti-worker court decisions, and by even more anti-worker Republicans and by too many complaisant Democrats, employers clamped down on two sets of freedoms that most American workers had assumed were theirs simply by dint of their rights as citizens.
Previously, if they had a grievance at work or had suffered damages in the workplace, assuming they had no union, they could always take their employer to court. But after a 1991 court decision effectively stripped them of that right by giving employers the right to subject those workers to a mandatory arbitration process—most often, as a condition of employment—workers lost their right to have their day in court. According to a 2018 study for the Economic Policy Institute by Alexander J.S. Colvin, just 2 percent of workers were contractually subjected to forced arbitration in 1992. By 2018, however, that number had risen to 56.2 percent of private-sector non-union workers, or roughly 60 million.
Biden cited the need to scrap noncompetes as a centerpiece of his administration’s policy to create a more competitive economy.
The other freedom workers have lost is even more elemental, and fundamental: the right to leave one job to take another. A large number of American workers are compelled to sign noncompete agreements, with which their employers forbid them from taking a job at a rival firm or leaving their job to start a business of their own in the same field. In recent decades, emboldened by the courts’ attitude—ranging from indifference to hostility to worker rights—employers have expanded this practice from the relatively small number of professional workers privy to proprietary trade secrets to any workers who may at some point want to move from the burger joint they’re working at to the burger joint across the street.
Which is one reason why the Biden-appointed majority on the Federal Trade Commission announced in January that it was beginning a process to abolish noncompete agreements. “Economic liberty, not just political liberty, is at the heart of the American experiment,” FTC Chair Lina Khan wrote in a New York Times op-ed, explaining the proposal. “You’re not really free if you don’t have the right to switch jobs or choose what to do with your labor. But millions of American workers can’t fully exercise that choice because of a provision that bosses put into their contracts: a noncompete clause.”
The two means of dealing with an institution that’s not meeting your needs, the economist Albert O. Hirschman wrote, are voice and exit. For millions, perhaps a majority, of American workers, the extirpation of unions and the rise of forced arbitration have eliminated the possibility of voice, while the spread of noncompetes has blocked the possibility of exit.
It’s these erosions of worker power and freedom that Biden-age Democrats in Congress (when they have the votes), in blue states, and at federal agencies have been working to reverse.
BIDEN HIMSELF IS NO JOHNNY-COME-LATELY to the fight against noncompetes. In a 2018 talk at the Brookings Institution, he called them a significant cause of wage stagnation. (Indeed, the FTC’s fact sheet on its proposed rule change estimates that it could increase workers’ yearly earnings by between $250 billion and $296 billion.) Once in the White House, Biden cited the need to scrap noncompetes as a centerpiece of his administration’s policy to create a more competitive economy.
In appointing Khan to head the FTC, Biden was entrusting what has often been a somnolent agency to one of the most intellectually and legally adept critics of the monopolies and monopsonies that dominate our economy. Khan’s proposal to strike down noncompetes provided ample testimony to her chops. Rather than continuing to document individual cases of employers’ use of noncompetes that ran afoul of restraint-of-trade laws, and ordering those employers to cease and desist, Khan argued instead that the FTC could proactively ban the practice under the long-neglected, often-forgotten Section 5 of the act that created the FTC, which empowers the Commission to curtail “unfair methods of competition.” For the past half-century, court decisions have largely limited the FTC to dealing with individual cases, but Section 5 is still on the books.
When the FTC passes such a rule (it is now just beginning the lengthy rulemaking process), it will doubtless be challenged by various business organizations in the courts. By choosing noncompetes as the battlefield on which she’ll fight, Khan has selected the one kind of restraint of trade on which the trustbusters can gain the most public support. The episodes in which employers have wielded noncompetes outrageously are legion. In announcing its proposed rule-setting, the FTC cited one recently settled case in which a Michigan security guard company used a noncompete clause to forbid its employees, who were working at or near the minimum wage, from going to work for any other guard companies within 100 miles of their employer, and when some did, charging them the $100,000 that the fine print of their employment agreement said would be the penalty.
How many low-paid workers with no proprietary knowledge are covered by these agreements? One study, headed by University of Maryland economist Evan Starr, that’s based on a 2014 survey of 11,505 workers found that roughly 18 percent of workers are bound by noncompetes, and while the rate was higher among higher-paid employees, it was still considerable among those who did more routine work. Among those making more than $40,000 annually, the rate was 25 percent; among those making less, the rate was 13 percent.
Another study, this from the Economic Policy Institute, of 634 businesses found that 49 percent said that some of their employees had been required to work under noncompetes and about 32 percent said that all their employees were. Based on that methodology, the EPI survey concluded that anywhere between a little over one-quarter and a little less than one-half of American workers had noncompete requirement in their contracts. The EPI authors believed that large numbers of employees didn’t know that they fell under noncompete restrictions, while all the employers in their survey knew perfectly well when they did. Starr’s survey bears out EPI’s assumption that many workers may not even know that they’re covered. Only 10 percent of the workers he surveyed had actually negotiated with their employer over a noncompete; for the remaining 90 percent, their coverage was a fait accompli, usually buried in the fine print, upon their hiring.
Only three states ban noncompete agreements, all of them with laws passed in the 19th century: California, North Dakota, and Oklahoma. In recent years, as awareness of noncompetes has spread, a number of blue states (and one purple state: New Hampshire) have banned them for low-paid or low-skilled workers, while some red states (Georgia most particularly) have passed laws making noncompetes more enforceable. One of the blue states that came late to limiting the scope and enforceability of noncompetes was Massachusetts. Some economic analysts have attributed the rise of California’s Silicon Valley and the decline of Massachusetts Route 128 as the hubs of tech innovation to the fact that California’s ban on noncompetes led to the proliferation of startups by young techies who left their previous employers, while Massachusetts’s ban on such job-switching, which wasn’t repealed until 2010, prevented a similar dynamic.
As with noncompetes, so with forced arbitration. In 2019, California became the only state to ban the practice outright, but California’s law is on hold awaiting a likely hostile ruling in the federal courts.
It’s not just culture-war issues like abortion rights, then, that are completely at variance from state to state. In the absence of federal lawmaking, it’s also issues of workers’ power (public employees can unionize in blue states and can’t in the red ones) and workers’ provision (minimum wages are higher in blue states than red) and workers’ freedoms. An FTC ban on noncompetes would at least end this one crazy-quilt approach to what most Americans surely believe to be one of their most basic rights.
With Congress gridlocked, it falls to Biden’s appointees in various regulatory agencies to assert—in some cases, bring back from the dead—the legal basis for restoring some of the power and freedoms that American workers once had. Khan’s resurrection of Section 5 is of a piece with National Labor Relations Board General Counsel Jennifer Abruzzo’s resurrection of long-forgotten Board rulings, like the one in the Joy Silk Mills decision, that once gave workers the legal assurance that they could unionize.
At a time when more than 70 percent of Americans have a favorable opinion of unions, a government structured to reflect the public will would legislate changes to empower the nation’s workers. That path is currently blocked by the divided Congress, but our government has latent executive power that it has not used—until lately. So keep an eye on the Biden agencies and the blue states. For now, at least, that’s where the changes will come.
