Fireside Stacks - An Antitrust Revolution: Why the FTC’s Renewed Focus on Coercion and Exploitation Matters
Sandeep Vaheesan, legal director, and Brian Callaci, chief economist co-authored a piece about judicial changes to antitrust law that has taken a more permissive approach to coercion and exploitation affecting worker wages.
Fast food workers’ Fight for $15 campaign shone a bright light on abuses of workers in franchised businesses. In particular, workers revealed the coercion not just of workers but also of the small business franchisees that employed them. Even if nominally independent franchisees wanted to raise wages, their corporate parents’ tight control over their cost and price structure made this impossible. For example, when a McDonald’s franchisee complained about the effects of maximum price requirements on her ability to make a profit, the company told her to “just pay your employees less.”
Why can a corporation like McDonald’s dictate what prices a nominally independent small business owner can charge? The answer lies in judicial changes to antitrust law since the 1970s that took a new, more permissive approach to coercion and exploitation—so long as it resulted in lower consumer prices. But opposition to economic coercion and exploitation has long been a core antitrust principle, and the Biden administration is taking steps to bring back this legal norm.
In April, the Federal Trade Commission (FTC) announced its final rule banning noncompete contracts—which prevent workers from switching jobs or leaving to start a business—for all workers. The agency estimates the rule will increase collective earnings for workers by as much as $488 billion over a 10-year period, creating more than 8,500 new businesses and catalyzing between 17,000 and 29,000 additional new patents every year.
Beyond its immediate effects on workers, the noncompete rule is significant for at least three other reasons. First, it resurrects the FTC’s underused authority, described in Section 5 of the FTC Act, to prohibit unfair methods of competition. The FTC can attack both conventional antitrust violations and, in the words of the Supreme Court, practices that are “against public policy for other reasons.” The new rule sets the stage for further, broader use of this important authority—including via enacting economy-wide competition rules like the noncompete ban—to structure markets and competition in accordance with public values. Antitrust law is about much more than stopping bad mergers or breaking up monopolists, and it is long past time for the FTC to claim the role Congress intended it to play in governing our public markets.
Second, the rule targets unfair competition in labor markets, marking a decisive turn away from the broken ideology of “consumer welfare” that has dominated antitrust since the Chicago School antitrust revolution of the 1980s, in which enforcers largely neglected the effects of corporate power on workers. Taking a narrower view of “welfare,” the ideology holds that low prices and maximum output of goods and services in the short run should be the principal goals of antitrust. (Critically, the Supreme Court has thus far confined formal application of consumer welfare to Section 1 of the Sherman Act, which prohibits restraints of trade, and has not extended it to the FTC Act and other antitrust laws.)
Third, and perhaps most important, the rule revives the historical antitrust hostility toward exploitative and coercive competitive practices. The FTC targets noncompetes for several reasons, such as that they impede efficient matching between employers and employees, transfer wealth from employees to employers, and stifle new business formation and innovation. While any of these alone would have been enough to enact the rule, the agency also articulated a theory of exploitation and coercion. Indeed, the phrase “exploitative and coercive” appears 40 times in the notice of the rule. According to the FTC, noncompetes are exploitative and coercive because employers use their power to force workers (apart from senior executives, who typically negotiate employment agreements) to acquiesce to noncompete clauses and to stop them from taking other jobs or striking out on their own.
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