The Federal Trade Commission (FTC) will soon enact a rule that will ban most noncompete agreements. But the Nevada Legislature should secure a ban on noncompete agreements for our workers in the next legislative session nevertheless. Noncompetes prevent workers from freely moving in the labor market by limiting their ability to earn a living or seek better opportunities in their field.
In what an opinion columnist in The New York Times calls the “Great American Labor Trap,” noncompetes lead to lost wages of $250 billion per year nationally, due to one in five American workers being subject to noncompetes. Not used merely for deep-pocketed executives with bargaining power, noncompetes effectively ban workers from their professions and infiltrate all labor sectors — even hairstylists, security guards and medical professionals.
Noncompete agreements fly against the ostensible core value of economic liberty, for which the FTC functions as a sentinel at the gates for “unfair methods of competition.”
“Unless you’re willing to move hundreds of miles away or take a huge pay cut to restart your career from scratch, a noncompete can effectively lock you into a job. That’s a clear restriction of individual liberty,” FTC Chair Lina Khan stated. The agency now drafts a new regulation to ban or severely limit noncompetes.
Noncompetes strangle workers’ futures. Handcuffing workers’ employment options decrease the possibilities of wage increases and job mobility throughout the labor market — giving employers an unfair edge over workers. A company doesn’t feel compelled to give a raise or treat an employee better if they can’t take a job across town. States with bans already in place saw wage increases immediately after rollout.
The FTC’s planned ban is sweeping and unprecedented. And — unfortunately — it stands a good chance of being struck down soon in federal court. The post Trump-era Supreme Court has proved generally hostile to administrative agencies tackling any major issues.
This means states need to do more. Two Nevada statutes are relevant here. In 2016, the Legislature enshrined the “blue pencil doctrine.” This allows judges to strike down noncompetes that are “unreasonable” in scope or geography while keeping the remainder in effect. For example, if a noncompete agreement runs for five years, the judge may do some editing — turning an unreasonable five-year term into a more reasonable three-year ban.
Employers know (or at least their lawyers know) that even if a lawsuit reaches the courts, the judge will give some effect to the noncompete, even where the employer overreaches. This, coupled with the understanding that many workers lack the legal savvy or resources to contest a noncompete, creates the impetus for the agreements’ continued use. In the 2021 session, the Legislature thankfully banned hourly worker noncompetes, but did not stop the use of the blue pencil doctrine.
Noncompete agreements promote harassment of former employees and even unenforceable ones may stop employees from changing jobs. Even if a former worker abides by the contractual obligations of a noncompete, an employer may still use it as a justification to threaten and harass departing employees.
Without knowing if the noncompete is enforceable and without the resources to hire counsel to investigate further, workers tend to acquiesce. These scare tactics reinforce the belief that the noncompete agreements are valid regardless of actual enforceability. These tactics remain common especially amongst Nevada’s health care providers.
Nevada’s persistent health care shortages underscore noncompete agreements’ ill effects. Two out of three Nevadans live without ready access to general practitioners. Health care corporations create oligopolies and fiercely defend their carved out territories through noncompetes. By ceding to the employer the power to redistribute patients, noncompetes divide doctors from patients. Doctors are hence blocked from freely serving their communities; creating worse patient outcomes and higher health care costs.
Certainly, businesses require contracting safeguards for their legitimate economic interests, but businesses have many other legal tools to utilize: nondisclosure agreements, nonsolicitation clauses and trade secret protections. Term employment contracts can protect employer investment in a worker just as well or better than noncompete clauses. A familiar business, Major League Baseball, thrives with these contracts, while still maintaining player mobility.
Businesses have — and will continue to have — leverage to protect their legitimate interests. Instead, noncompetes are used merely to keep employees from leaving.
The business interest in noncompete agreements simply does not outweigh the public good. Continuing to enforce noncompetes agreements will create further harm not only to workers, but to Nevada as a whole. The Nevada Legislature should follow the FTC’s lead and protect our workers by passing a statutory ban on noncompete agreements in the next session.
Kathryn James is a student at UNLV’s Boyd School of Law, and has done extensive research and work on this topic with professor Benjamin Edwards and the university’s Public Policy Clinic.
