Business and Management INK

Non-Compete Agreements: A Surprising Trend

May 8, 2023 912

Kurt Stanberry discusses the motivation behind “Would an FTC Ban on Non-Compete Agreements Lead to Higher Wages for American Workers?,” which was published in Compensation & Benefits Review. His reflection appears below the paper’s abstract.

There has been a potentially significant new development in the field of employee compensation, specifically as it relates to the use of non-compete agreements and their effect on wages for the average American worker. The Biden Administration issued an Executive Order in July 2021, urging the Federal Trade Commission to consider banning most non-competes; especially those acting as a restriction on job mobility and wage growth for low and moderate wage workers. Non-competes have become a widely-discussed issue due to the significant increase in their use by employers for lower-wage employees. This article discusses the recent expansion in the use of non-competes, and examines the effect of their expanded use on wages for the average rank-and-file worker, including a discussion of the Biden Executive Order, and the possibility of federal action regulating the use of non-competes for the average American worker.

What motivated you to pursue this research?

There has been a recent proliferation in the number of American workers being required to sign non-compete agreements, especially at the lower and middle levels of employment. This has had a downward impact on the wage growth of these employees, due primarily to reduced job mobility (which is the way many lower and mid-level workers increase their pay.) My research interest has consistently addressed issues affecting middle-class workers, and those areas in which policy changes might be warranted, and non-competes is an example of an area in which policy changes seem to be warranted.

Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?

Yes, the Biden Administration recently promulgated an Executive Order, requiring the Federal Trade Commission to address the issue of non-compete agreements. In January 2023, the FTC proposed a rule to ban non-compete clauses. Final action from the FTC is still pending.

Were there any surprising findings?

Yes, recent studies indicate that more than one in five workers earning less than $40,000 are now required to sign non-competes, which were originally intended to be utilized for higher-earning employees.

Kurt Stanberry is a professor of business law and ethics at Davies College of Business, University of Houston Downtown. He has four decades of experience on the faculty of universities in Texas and California as well as visiting international positions in London, Tokyo, and Seoul. He recently co-authored two OER textbooks (Business Ethics and Entrepreneurship) for OpenStax Publishing at Rice University. As a licensed attorney, he has represented multiple entrepreneurs/small business owners.

View all posts by Kurt Stanberry

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