Why Non-Compete Agreements for Low-Wage Workers Should Be Banned
Written by Minseo You
When most people hear “non-compete agreement,” they imagine tech executives or corporate insiders protecting trade secrets. Few imagine fast-food workers, warehouse employees, or hair stylists being legally restricted from taking another job. However, that has become the reality in the U.S.
According to a 2019 Economic Policy Institute report, nearly 30 million American workers are bound by non-compete clauses. Even more troubling, research from the Treasury Department found that roughly 14% of workers earning under $40,000 per year are subject to these agreements. These are not corporate strategists safeguarding proprietary information, they are just hourly workers trying to earn a living. Non-compete agreements prohibit employees from working for competitors within a geographic area and timeframe after leaving a job. While they may make sense for executives with access to trade secrets, applying them to low-wage workers is legally and economically indefensible. From a business law perspective, non-competes are governed by state contract law but must meet standards of “reasonableness” in scope and duration. Historically, courts upheld them only when necessary to protect legitimate business interests. However, over time, employers began inserting boilerplate non-compete clauses into contracts for workers with no access to sensitive information. This expansion distorts the labor market. By restricting workers’ ability to move to competing employers, non-compete agreements reduce labor mobility and competition for workers, allowing firms to suppress wages and preventing labor from flowing to jobs where it could be most productive.
The Federal Trade Commission estimated in 2023 that banning non-competes nationwide could increase workers’ earnings by nearly $300 billion annually. Why? Because when workers cannot switch jobs freely, competition for labor declines. Employers gain leverage, wages stagnate, and innovation slows. In states like California, where non-competes are largely unenforceable, worker mobility is significantly higher. Silicon Valley’s growth is often attributed not just to innovation, but to the ability of engineers to move freely between firms. Competition for talent fuels competition in markets.
Critics argue that banning non-competes would hurt small businesses by allowing employees to leave and immediately join competitors. But this argument ignores existing legal protections. Employers can already rely on non-disclosure agreements (NDAs) and trade secret laws under the Uniform Trade Secrets Act to protect confidential information. Non-competes are not the only tool — they are simply the most restrictive.
Moreover, low-wage workers rarely have bargaining power to negotiate these clauses. Many are unaware they have signed them at all. In some cases, workers only discover the restriction after accepting a new job and receiving a legal threat from their former employer.
That is not contractual fairness — it is coercion disguised as consent. In January 2023, the FTC proposed a rule to ban most non-compete agreements nationwide, arguing they constitute an “unfair method of competition” under Section 5 of the Federal Trade Commission Act. The proposal sparked legal challenges, with opponents claiming the FTC lacks authority to issue such a sweeping ban. But this is precisely where federal policy must intervene. Allowing each state to regulate non-competes differently creates a fragmented labor market. Workers in Michigan should not have fewer mobility rights than workers in California. Labor mobility is an economic issue of national importance.
Congress or the FTC should implement a federal ban on non-compete agreements for workers earning below a defined income threshold, for example, $100,000 annually while preserving limited use for high-level executives with demonstrable access to proprietary strategy or trade secrets. This is not anti-business, it’s pro-competition. Capitalism depends on voluntary exchange and competitive markets. When workers are legally prevented from selling their labor to the highest bidder, markets are no longer competitive, they are constrained. If we truly believe in free markets, we must also believe in free labor mobility. The law should not trap low-wage workers in jobs they are trying to leave.
It is time for Congress to act and for regulators to restore fairness to employment contracts.
