The Federal Trade Commission is proposing a new rule that would prevent employers from imposing imperfect terms on workers. These types of arrangements, long criticized by progressives and some free market proponents, usually prevent workers from joining a competitor for a period of time after they leave the company.
President Biden praised the proposed rule, calling it “a huge step forward.” FTC move follows executive order Signed in 2021 targeting anticompetitive practices in technology, healthcare and other parts of the economy. The order included a call to ban or Limit incomplete agreements To help raise wages.
“The freedom to change jobs is the essence of economic freedom and a thriving competitive economy,” said Lina Khan, chair of the Federal Trade Commission. statment. “Inefficiencies prevent workers from switching jobs freely, deny them higher wages and better working conditions, and deny companies the talent pool they need to build and expand.”
The proposed rule would make it illegal for an employer to enter into or attempt to enter into a non-compete business with a worker, or to present to a worker that, under certain circumstances, he is subject to a non-compete worker. The rule also invalidates existing incomplete agreements.
“This is a huge development in the employment world,” said Peter Rahbar, a New York-based employment attorney who has represented employers and workers alike.
Didn’t like it, but it’s common
Incomplete agreements are becoming increasingly common in the workplace. One estimate from the left-leaning Economic Policy Institute found that a third of companies require all of their workers to sign non-compete contracts — including many hourly workers in low-paying jobs like cleaning, food service, and security.
States have begun to regulate non-competes by restricting what workers can sign for them or requiring companies to pay more to order non-competes, and studies have shown that states that limit these restrictive agreements see Then the wages of the workers rise.
Congressional progressives praised the proposed rule, calling it a “major pro-labor step”.
The proposed rule comes one day after the Federal Trade Commission Settled with three companies It required their workers to sign non-competes, including a Michigan-based security firm that threatened minimum wage guards with a $100,000 fine if they got a job with a competitor.
The FTC estimates that the new rule could boost wages by about $300 billion annually and expand employment opportunities for about 30 million Americans.
However, the rule is likely to be challenged in the courts, with the US Chamber of Commerce calling it “blatantly illegal. “
“It is difficult to overstate the scope of this overreach by the FTC on non-competitors — both legally and in terms of public policy —,” Neil Bradley, chair of policy in the chamber, said. He said on Twitter.
The FTC’s proposal is based on a preliminary finding that imperfect clauses preclude competition in violation of Section 5 of the FTC Act. Article 5 prohibits unfair competition tactics.
It will apply to independent contractors and anyone who works for any company, paid or unpaid. It would also require employers to cancel existing, incomplete clauses and effectively inform workers that they are no longer in effect.
The proposed rule does not generally apply to other types of employment restrictions, such as non-disclosure agreements, but other types of employment restrictions can be subject to the rule if they are so broad as to function as incomplete clauses. It also does not apply to agreements between companies and franchisees.
protect their investment
Employers who hire noncompete people say they need to protect trade secrets or other confidential information that employees may learn on the job.
“Employers will say these constraints are necessary to foster innovation because we lose employees all the time and they take information with them, so we can’t innovate,” Rahbar said. He noted that even if the FTC’s ban were to take effect, employers would have other tools, such as confidentiality agreements, that would limit the information workers could get from the company.
“This will, and should, cause introspection on the part of employers about how to protect what they care about,” he said. “With employees, that means paying them more money, treating them better, and thinking about how you can motivate someone to stay with you rather than keep them from leaving. And employers will have to work harder to keep their employees.”
With Associated Press reporting.