The FTC also seeks to prohibit by rule other employment provisions that have the same effect as non-competes. This may include requests for reimbursement of training costs if the employee leaves the company within a certain period of time.
The FTC’s proposal would cover nearly all work arrangements, including unpaid or volunteer positions, apprentices and independent contractors, in addition to regular employees.
The proposal fulfills a key pillar of President Joe Biden’s competition policy agenda since last year. In an executive order expanding from July 2021, the White House directed the entire federal government to prioritize cases related to competition policy and enforcement, particularly labor markets. This particularly involved the FTC’s rulemaking efforts regarding non-compete clauses.
Noncompetes are “a widespread and often exploitative practice that suppresses wages, stifles innovation and prevents entrepreneurs from starting new businesses,” the agency said in a statement.
The FTC estimates that banning the practice could put nearly $300 billion in workers’ pockets each year, as well as improve career opportunities for nearly 30 million Americans.
“It’s an individual problem for one worker, but it’s an overall problem for the economy,” FTC Chairwoman Lina Khan told reporters Wednesday.
In written statements, Khan and Commissioner Rebecca Kelly Slaughter highlighted the impact of non-competitiveness not only on wages, but also on innovation and new business formation.
“This in turn raises prices and lowers product quality,” Khan said, adding that banning non-competes in the healthcare sector alone could lower consumer prices by up to $150 billion annually.
FTC commissioners voted 3-1 along partisan lines to approve the proposal, with the agency’s lone Republican commissioner, Christine Wilson, voting no.
In a written statement, Wilson said his fellow commissioners were departing from “hundreds of years of legal precedent that used a fact-specific inquiry into whether a non-compete clause is unreasonable” and instead proposed a near ban on the practice. . Wilson also questioned whether the agency has the constitutional authority to issue the rules, saying a recent U.S. Supreme Court ruling limiting the EPA’s powers undermines the FTC’s non-compete efforts.
The U.S. Chamber of Commerce also criticized the proposal, saying the agency lacked the authority to issue the rule and ignored the benefits of experience.
“The attempt to ban non-compete clauses in all employment settings overturns well-established state laws that have long governed their use and ignores the fact that, when used properly, non-compete agreements are an important tool in promoting innovation and protecting competition,” said Sean Heather, director of international regulation and antitrust at the US Chamber of Commerce. it is said in the statement of the senior vice president for issues.
According to the other three commissioners, in many cases, employers use their considerable bargaining power to force workers to sign these agreements, such as making them receive severance pay or part of their employment contract.
“For too long, binding non-compete agreements have unfairly deprived millions of workers of the freedom to change jobs, negotiate for better pay and start new jobs,” said Sarah Miller, who heads the antitrust group’s American Economic Freedoms Project. .
Khan said one reason for creating the rule is that the use of non-compete agreements has increased in recent decades among a broader segment of the American workforce.
“These are no longer just used in the boardroom, but are now widespread throughout the economy,” he said.
The FTC estimates that about one in five workers are exposed to non-competes, Khan said.
In a tweetSen. Ron Wyden (D-Ore.), who chairs the Senate Finance Committee, said that “anti-competition provisions are anti-worker and anti-American, plain and simple. I’m glad that [FTC] is acting to end this practice and level the playing field for American workers.”
In news, the FTC on Wednesday announced enforcement actions against two glass companies and a pair of related security firms for using non-competes.
States including California, North Dakota and Oklahoma, as well as the District of Columbia, have already outlawed the use of non-compete agreements, and other states restrict their use among certain employee groups.
The rule-writing and implementation process can be lengthy and involve public comment and potential legal challenges. The final rule won’t go into effect until at least 2024. The FTC will open the proposal for two months of public comment, and the rule will take effect six months after the final version is published.
The FTC often uses its rulemaking authority to enforce its consumer protection mandate, including recent proposed rules governing privacy and data security practices. However, the agency last issued a competition rule in 1967 regulating “discriminatory practices in the men’s and boys’ specialty clothing industry.” The rule was never enforced and was repealed in 1994.