by Schuyler VanValkenburg
Milton Friedman wrote in “Free to Choose” that “economic freedom is an essential prerequisite for political freedom.” But here in Virginia, the people who most need economic freedom and the political self-actualization that comes with it are the people whose economic freedom is most constrained. Let me illustrate with two realistic examples.
Imagine a young cook working in a chain restaurant. The wage scales at those restaurants are fairly flat, and opportunities for advancement pretty rare. So. what would economic freedom mean to that young cook? It would mean the opportunity to move to a new restaurant for a higher paying job, or to get a business loan to open a new food truck or restaurant. But in Virginia, that cook’s employer has the legal ability to bind them from future competition as part of the conditions of employment. Even worse, that boss is allowed to collude with the other restaurateurs in the region to agree not to hire one another’s employees, further limiting competition and frustrating that cook’s desire to seek a higher wage for his talents.
Or imagine instead a cosmetologist and hairstylist. After spending time, money, and effort getting licensed and trained in their trades, they went to work for a national salon chain to build capital before opening their own business. But when ready to start their entrepreneurial journey, their employer tells them that, legally, they can’t open the new salon within 30 miles of their current workplace – and that they will be sued if they do. In Virginia, the national salon operator has the legal authority to do just that.
These limits are called “non-compete” and “non-poach” agreements, and they crush the ambitions of at least one in 10 and as many as four in 10 workers making less than $40,000 in the United States, according to a Department of Treasury study in 2016. Repeated studies have shown that these agreements are often coercive and not transparent for the employees, and rely as much on intimidation as legal enforceability. In fact, many non-competes are not legally enforceable because their penalties and limits are too stiff — in some cases, keeping people working in the same field as their former employment for as long as a decade. But without the legal knowledge or resources to challenge these limits, workers remain disadvantaged. The people impacted by these agreements — overwhelmingly younger workers — are the ones who need economic mobility and the chance to innovate, to create the businesses and ideas that will keep the economy moving.
The impact of non-competes on a state’s economy is not just bad in principle, it is measurable. According to the Economic Innovation Group at the University of Maryland, in a state where non-competes and non-poaching agreements are 10% more common in a given industry, wages for workers in that industry are 4% lower, and new job openings in that industry are 20% less common.
The problem of non-competes is not a Democratic or Republican problem. New York is one of the states with the most extensive and abusive use of non-competes against low wage workers by employers, and so is Georgia. Massachusetts is leading the way in reform, but so is Oklahoma. Reform need not take the form of entirely banning non-competes, as California has done. Reform can include limiting non-competes to highly paid employees in possession of trade secrets, tightly policing the reasonability of agreements, or creating provisions which force employers to carefully consider when it’s worth using non-competes.
This is why I plan on re-introducing a bill, modeled on the legislation passed in Utah and Illinois, that would ban non-competes for low wage workers (people who make below the median wage). Non-competes hurt workers’ ability to earn for their families and hurt our state’s entrepreneurial health. It is time to join the growing number of red states and blue states that are banning them.
Abraham Lincoln, in his 1861 State of the Union speech, famously recognized that the ability of people to have upward and outward mobility was at the core of the American ideal, writing:
…there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation…There is not of necessity any such thing as the free hired laborer being fixed to that condition for life. Many independent men everywhere in these States a few years back in their lives were hired laborers. The prudent, penniless beginner in the world labors for wages awhile, saves a surplus with which to buy tools or land for himself, then labors on his own account another while, and at length hires another new beginner to help him. This is the just and generous and prosperous system which opens the way to all, gives hope to all, and consequent energy and progress and improvement of condition to all.
Del. Schuyler VanValkenburg, D-Henrico, represents the 72nd House district.
