{"id":3144,"date":"2024-06-26T18:17:32","date_gmt":"2024-06-26T16:17:32","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=3144"},"modified":"2024-06-26T18:17:32","modified_gmt":"2024-06-26T16:17:32","slug":"should-italy-also-ban-non-compete-clauses","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/06\/26\/should-italy-also-ban-non-compete-clauses\/","title":{"rendered":"Should Italy also ban non-compete clauses?"},"content":{"rendered":"<p><i><span style=\"font-weight: 400;\">Non-compete clauses, which were recently banned in the United States, are firmly established in Italy. They are often used improperly and imposed on workers who do not have access to any kind of confidential information. The unions themselves remain silent on a practice that contributes to low wages<\/span><\/i><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On 23 April 2024, the US Federal Trade Commission, one of the two competition authorities in the United States, decided to ban the use of non-compete clauses in employment contracts. A radical decision that is bound to spark debate in the US (the US Chamber of Commerce has already filed an appeal, and if Donald Trump returns, the ban will most likely be lifted) as well as in the rest of the world.\u00a0<\/span><\/p>\n<h3><b>What are non-compete clauses?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">A non-compete agreement is an agreement or clause included in the employment contract that prevents an employee from resigning from their company to work for a competitor or start a new business in the same sector. Non-compete clauses are justified by the need to protect trade secrets and not to discourage investments in the employment relationship by the company, such as those in certain types of training in specific knowledge that would be lost if the employee were then to move to another company. However, non-compete clauses can also be used to limit the opportunities that workers may have elsewhere by allowing the company to keep wages lower than those paid by other companies for the same type of services. In other words, they allow employers to pay lower wages than those that would prevail in a market where workers could freely change employers.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">These clauses may also hinder the establishment of new companies or the growth of those that are already present in the market and competing with the company using them. This is why these clauses are closely scrutinised by the competition authorities. But why does such a specific and relatively technical issue generate so much interest? It is an uncommon case where economic research has met with popular sentiment, which turned into a media sensation and then political action.\u00a0<\/span><\/p>\n<h3><b>The alarm raised in the United States<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">It all started with a series of academic studies analysing the reasons for the discrepancy between wage growth and productivity growth in the United States and other OECD countries, which put in the dock the excessive market power that some companies had over workers, allowing them to pay wages lower than the value of their individual output. Economists at the Federal Trade Commission estimate that this \u201cmarkdown\u201d &#8211; the difference between the value of the labour product and the wages paid in the manufacturing sector &#8211; is around 1.5. This means that for every dollar and a half generated by their work, employees earn only one dollar.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Meanwhile, case law and newspapers have shown that some well-known companies had adopted practices aimed at limiting workers\u2019 ability to change employers, for example through \u201cno-poaching\u201d agreements (an anti-competitive practice whereby companies agree not to hire each other\u2019s employees). And not only in Silicon Valley, where Steve Jobs in his famous emails to Eric Schmidt, then head of Google, demanded he stop poaching his employees, but also in fast-food chains. In 2014, a survey conducted by J.J. Prescott, Norman Bishara and Evan Starr showed the prevalence of other clauses as well: it turned out that 18% of US workers (i.e. 30 million people) were bound by a non-compete agreement, including low-skilled workers without access to trade secrets. Subsequent studies, comparing wage trends in different US states (non-compete clauses have been historically banned in California, North Dakota, Oklahoma and, as of 2023, also in Minnesota, while reforms restricting their use have recently been introduced in several states), showed that by restricting worker mobility, these agreement tend to stifle knowledge dissemination, reduce labour market dynamism, and limit competition also in the product market, negatively affecting innovation and, ultimately, growth.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">These elements, combined with how easily these clauses can be introduced, in a world where \u201ccontrol rooms\u201d have fewer and fewer buttons, made the issue interesting even for politicians.<\/span><\/p>\n<h3><b>A global issue<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The use of non-compete clauses is not a phenomenon confined to the United States. These practices are adopted on a significant scale in Australia, Japan, the United Kingdom and many EU countries, including Austria, the Netherlands, Finland, Denmark and Norway. Although conducted with different methods and samples, and therefore not directly comparable, surveys in the various countries show an incidence of non-compete clauses between 11% and 30% of private sector employees.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Even outside the United States there have been reforms concerning these clauses, in several cases with bipartisan agreement between political forces. In Austria, non-compete agreements were banned for low-wage workers as early as 2006. In Norway, a law came into force in 2016, setting the maximum duration of non-compete clauses at 12 months, and requiring companies to pay a salary equal to the previous 12 months\u2019 remuneration during this period. In Finland, as of January 2023, companies must pay a non-compete clause compensation of at least 40 % of the salary if the restriction lasts less than 6 months and at least 60 % if it is in force for a longer period. Proposals to limit their use have recently been launched by the governments of Australia, the Netherlands and the United Kingdom.<\/span><\/p>\n<h3><b>And in our country?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">In Italy, non-compete clauses are allowed and regulated by the Civil Code (Article 2125). However, the law only provides for minimum requirements, without offering a detailed framework. National collective bargaining agreements, on the other hand, play no role in regulating their use despite their importance in governing many aspects of employment relationships. Consequently, the courts retain a significant margin of discretion in assessing each case. Nonetheless, the cases that reach the Supreme Court each year can be counted on one hand, which has led over the years to consider the phenomenon as entirely marginal.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In contrast, a study recently published by some of us in the <\/span><i><span style=\"font-weight: 400;\">Journal of Law, Economics, and Organisation<\/span><\/i><span style=\"font-weight: 400;\"> and based on a survey of 2,686 workers, shows that approximately 16% of private sector employees are bound by a non-compete clause, i.e. approximately 2 million workers (see figure). It is important to point out that these clauses are often used in combination with others, producing even more restrictive effects. These additional clauses are also often improperly included. For example, in Italy, confidentiality agreements are extended to workers who do not have access to any confidential information, and 17% of workers covered by training reimbursement clauses report not having received any training.<\/span><\/p>\n<p><b>Percentage of employees bound by clauses restricting post-employment activity<\/b><\/p>\n<figure id=\"attachment_3145\" aria-describedby=\"caption-attachment-3145\" style=\"width: 640px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-3145 size-large\" src=\"https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_1-1-1024x512.png\" alt=\"\" width=\"640\" height=\"320\" srcset=\"https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_1-1-1024x512.png 1024w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_1-1-300x150.png 300w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_1-1-768x384.png 768w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_1-1-1536x768.png 1536w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_1-1-2048x1024.png 2048w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_1-1-600x300.png 600w\" sizes=\"auto, (max-width: 640px) 100vw, 640px\" \/><figcaption id=\"caption-attachment-3145\" class=\"wp-caption-text\">Note: The graph shows the percentage of workers who report being (certainly or probably) bound by clauses restricting employee mobility among different employers by type of clause. A non-disclosure agreement provides that sensitive information that an employee may obtain during employment cannot be disclosed. A pre-assignment agreement assigns the employer property rights over any invention created during the employment relationship. A non-solicitation agreement prevents \u201cpoaching\u201d clients or colleagues in the new business. Reimbursement clauses provide for the employee to repay the costs associated with attending training coursesof or bonuses received.\u00a0 Source: Boeri, Garnero and Luisetto (2024), \u201cNon-compete agreements in a rigid labour market: the case of Italy\u201d, The Journal of Law, Economics, and Organisation.\u00a0<\/figcaption><\/figure>\n<h3><b>Low educated workers are bound and unaware<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">These agreements not only concern high-skilled professionals or managers or workers with access to confidential information but are much more widespread. The clauses are relatively frequent among workers in manual and elementary occupations and among those with a low level of education and wages, even without access to any kind of confidential information.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Not to mention that more than half of the clauses do not seem to comply with the minimum legal requirements, i.e. they do not specify a compensation and impose unlimited constraints in terms of duration, sector or geographical area. This means that a large proportion of the agreements are (probably) unenforceable and not suitable for judicial scrutiny. At the same time, workers seem to be unaware of the invalidity of the clauses under the law.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">These data on the validity of clauses also seem to be confirmed from the point of view of the employer. Recently, as part of a second ongoing study on the subject, the authors of this article interviewed 313 personnel managers in collaboration with the Italian Personnel Management Association (AIDP). Among those who stated that they had proposed a non-compete agreement, about 25% had an incorrect understanding of the law, which could result in the proposal of an invalid clause.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For workers, the fact of having a valid or null agreement does not affect their perception of the validity of the clause in court (as shown in the figure): unenforceable non-compete agreements also contribute to reduced worker mobility.\u00a0<\/span><\/p>\n<p><b>Perceptions of the likelihood that the clause will be found enforceable by the court based on its validity<\/b><\/p>\n<figure id=\"attachment_3147\" aria-describedby=\"caption-attachment-3147\" style=\"width: 640px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-3147 size-large\" src=\"https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_2-1024x564.png\" alt=\"\" width=\"640\" height=\"353\" srcset=\"https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_2-1024x564.png 1024w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_2-300x165.png 300w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_2-768x423.png 768w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_2-1536x846.png 1536w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_2-2048x1128.png 2048w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_2-600x330.png 600w\" sizes=\"auto, (max-width: 640px) 100vw, 640px\" \/><figcaption id=\"caption-attachment-3147\" class=\"wp-caption-text\">Note: The graph shows the average likelihood, on a scale of 1 (unlikely) to 5 (very likely), perceived by the employee and the employer that the clause will be found enforceable in court. As to the employees, \u201clikely invalid clauses\u201d means clauses that do not seem to comply with the minimum requirements set by law, i.e. specifying a compensation and time, sectoral and geographical limits. We use the conditional because, since we do not have access to the employment contracts, we treat the data on invalidity with caution (the information provided by employees on their employments contracts suggests that the clauses are invalid), as well as the data on validity (employees\u2019 answers suggest that the clauses are valid, but we are not in a position to assess the reasonableness of the actual content). As to the employers, the graph shows those who stated that they proposed the clause and the knowledge of the law that transpires from their answers. Based on this knowledge, we rank the potential validity of the proposed clause. Source: Boeri, Crescioli, Garnero and Luisetto, work in progress.<\/figcaption><\/figure>\n<p><span style=\"font-weight: 400;\">This is also reflected in the behaviour of workers and employers. Among those who have considered resigning in the past or are currently considering changing jobs, almost half report that the non-compete clause was the main obstacle or one of the obstacles. While a third of the employers stated that the clause was an obstacle to the potential hiring of a worker.<\/span><\/p>\n<p><b>Percentage of respondents who believe that the clause was an obstacle to changing jobs (if worker) or hiring a worker (if employer)<\/b><\/p>\n<figure id=\"attachment_3149\" aria-describedby=\"caption-attachment-3149\" style=\"width: 640px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-3149 size-large\" src=\"https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_3-1-1024x500.png\" alt=\"\" width=\"640\" height=\"313\" srcset=\"https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_3-1-1024x500.png 1024w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_3-1-300x147.png 300w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_3-1-768x375.png 768w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_3-1-1536x750.png 1536w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_3-1-2048x1000.png 2048w, https:\/\/www.rivistaeco.com\/wp-content\/uploads\/sites\/2\/2024\/06\/Boeri_3-1-600x293.png 600w\" sizes=\"auto, (max-width: 640px) 100vw, 640px\" \/><figcaption id=\"caption-attachment-3149\" class=\"wp-caption-text\">Note: The graph shows: i) the percentage of employees bound by a non-compete agreement who considered resigning for whom the clause was the main obstacle or one of the obstacles, ii) the percentage of employers for whom the clause was an obstacle to hiring a worker. Source: Boeri, Crescioli, Garnero and Luisetto, work in progress.<\/figcaption><\/figure>\n<h3><span style=\"font-weight: 400;\">\u00a0<\/span><b>Time to act?\u00a0<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">As we have seen, over the past decade, non-compete agreements have been used even with low-wage workers and when the conditions justifying them seem to be lacking. This reduces worker mobility, pushing wages down. As a result of these findings, the American FTC and the UK and Australian competition authorities, as well as some European governments, have decided to introduce new rules to limit their abuse.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Has the time come for something to be done in Italy as well? Isn\u2019t it time for the Italian Competition Authority (AGCM) to follow the example of the antitrust authorities that have started to address competition in the labour market, convinced that it also affects competition in the product market? And why have the trade unions in Italy ignored the issue so far and not deemed it worth addressing in collective bargaining? These clauses could be one of the factors explaining the low wages paid by many Italian companies documented in the first issue of <\/span><i><span style=\"font-weight: 400;\">eco<\/span><\/i><span style=\"font-weight: 400;\">. Greater attention from trade unions to the problem could allow for a less radical intervention on non-compete clauses than in the United States. Instead of banning them always and in any case, collective bargaining could be assigned the task of ensuring that the law is complied with, starting with providing adequate information to workers and personnel managers on the cases in which the clauses are considered null and void by the law.<\/span><\/p>\n<p><em><span style=\"font-weight: 400;\">Bio<\/span><\/em><\/p>\n<p><em><span style=\"font-weight: 400;\">Tito Boeri is professor of economics and head of the Economics Department at Bocconi University. He is the editorial director of <\/span><span style=\"font-weight: 400;\">eco<\/span><span style=\"font-weight: 400;\">.<\/span><\/em><\/p>\n<p><em><span style=\"font-weight: 400;\">Tommaso Crescioli is a researcher at the Economics Department and the Innocenzo Gasparini Institute for Economic Research at Bocconi University and a final year PhD student in political economy at the London School of Economics and Political Science.<\/span><\/em><\/p>\n<p><em><span style=\"font-weight: 400;\">Andrea Garnero is a labour economist at the Directorate for Employment, Labour, and Social Affairs of the OECD. He has worked at the European Commission and as assistant for economic affairs and the G20 for the President of the Council. He is a member of the editorial team of <\/span><a href=\"http:\/\/lavoce.info\"><span style=\"font-weight: 400;\">lavoce.info<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/em><\/p>\n<p><em><span style=\"font-weight: 400;\">Lorenzo G. Luisetto is a research scholar at the Empirical Legal Studies Center of the University of Michigan Law School. He was a research fellow at the University of Trento, where he obtained his PhD in European and Comparative Legal Studies.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Non-compete clauses, which were recently banned in the United States, are firmly established in Italy. They are often used improperly and imposed on workers who [&hellip;]<\/p>\n","protected":false},"author":5951,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"coauthors":[23,82,83,84],"class_list":["post-3144","post","type-post","status-publish","format-standard","hentry","category-non-categorizzato"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Should Italy also ban non-compete clauses? - Rivista Eco<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"http:\/\/www.rivistaeco.com\/en\/2024\/06\/26\/should-italy-also-ban-non-compete-clauses\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Should Italy also ban non-compete clauses? - Rivista Eco\" \/>\n<meta property=\"og:description\" content=\"Non-compete clauses, which were recently banned in the United States, are firmly established in Italy. 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