The FTC also seeks to prohibit other types of employment provisions under the rule that have the same effect as a non-compete. This could include requirements for reimbursement of training expenses if a worker leaves a company within a certain period.
The FTC’s proposal would extend to nearly all job positions, including unpaid or volunteer jobs, apprentices, and independent contractors, in addition to regular employees.
The proposal fulfills a key pillar of President Joe Biden’s competition policy agenda from last year. In a sprawling July 2021 executive order, the White House directed the entire federal government to prioritize work involving competition policy and enforcement, particularly in labor markets. This specifically included a regulatory effort by the FTC on non-competition clauses.
Non-competition is a “widespread and often exploitative practice that suppresses wages, stifles innovation and prevents entrepreneurs from building new businesses,” the agency said in a statement.
The FTC estimates that banning the practice could put nearly $300 billion back into workers’ pockets each year, as well as boost career opportunities for about 30 million Americans.
“It’s an individual problem for a worker, but it’s a global problem for the economy,” FTC Chairwoman Lina Khan told reporters on Wednesday’s call.
In written statements, Khan and Commissioner Rebecca Kelly Slaughterhighlighted not only the effect of non-competition on wages, but also on innovation and the creation of new businesses.
“This in turn lowers product quality while raising prices,” Khan wrote, saying that in the healthcare sector alone, banning non-competition could lower consumer prices by as much as to $150 billion each year.
FTC commissioners voted 3-1 along partisan lines to release the proposal, with the agency’s only Republican commissioner, Christine Wilson, voting no.
In a written statement, Wilson said his fellow commissioners were departing “hundreds of years of legal precedent that uses factual inquiry to determine whether a non-competition clause is unreasonable,” and instead proposing a quasi-ban. general practice. . Wilson also questioned whether the agency had the constitutional power to make the rules and said a recent U.S. Supreme Court opinion limiting the Environmental Protection Agency’s authority condemns the efforts. FTC non-competition.
The US Chamber of Commerce also criticized the proposal, saying the agency lacked the authority to issue the rule and ignored the benefits of the practice.
“Attempting to ban non-competition clauses in all employment circumstances overturns well-established state laws that have long governed their use and ignores the fact that, when used appropriately, non-competition agreements competition are an important tool for fostering innovation and preserving competition,” Sean Heather, U.S. Chamber of Commerce senior vice president for international regulatory and antitrust affairs, said in a statement.
According to the other three commissioners, in many cases employers use their disproportionate bargaining power to coerce workers into signing these contracts, for example by making it a condition of receiving severance pay or part of a contract. of work.
“For too long, coercive non-competition agreements have unfairly deprived millions of workers of the freedom to change jobs, negotiate better pay and start new businesses,” said Sarah Miller, who leads the group. antimonopoly American Economic Liberties Project, in a statement. .
Khan said one of the reasons for the rule making was the increased use of non-compete agreements across a broader segment of the U.S. workforce in recent decades.
“These are no longer just used in boardrooms, but are now essentially proliferating throughout the economy,” she said.
The FTC estimates that about one in five workers are subject to non-competition, Khan said.
In a tweetsen. Ron Wyden (D-Ore.), who chairs the Senate Finance Committee, said “non-competition clauses are anti-labor and anti-American, plain and simple. I’m happy that [FTC] is about to end this practice and level the playing field for American workers.
As a precursor, the FTC on Wednesday enforcement actions announced against two glass companies and a pair of related security companies for their use of non-competition.
States such as California, North Dakota and Oklahoma, as well as the District of Columbia have already banned the use of non-competition agreements, and other states restrict their use among certain groups of workers.
The process of drafting and implementing a rule can be lengthy and includes public comment and potential legal challenges. A final rule likely won’t be in place until at least 2024. The FTC will open the proposal for two months for public comment, and the rule will go into effect six months after a final version is released.
The FTC frequently uses its regulatory power to enforce its consumer protection mandate, including recently proposed regulations governing privacy and data security practices. The last time the agency issued a competition rule, however, was in 1967, governing “discriminatory practices in the industry of made-to-measure men’s and boys’ clothing.” The the rule was never enforced and rescinded in 1994.
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