President Biden says non-compete agreements should be banned
Joe Biden mentioned hamburgers in his 2023 State of the Union address.
In particular, the president questioned why the person who calls your hamburger order could have signed a non-compete agreement preventing him from working at a nearby high-paying burger restaurant, an agreement that 30 million U.S. workers also owe. Biden promised that these agreements would soon be banned.
This is the ongoing work of FTC Chair Lina Khan, who announced in January that the agency proposed rule prohibit the practice of forcing employees to sign non-compete clauses that prohibit employees from working for their employer’s competitors for a specified period of time after leaving their job.
“Freedom to change jobs is the foundation of economic freedom and a competitive, prosperous economy,” Khan said in his speech. statement. “Non-competition prevents workers from freely changing jobs, depriving them of higher wages and better working conditions, and depriving enterprises of the talent pool they need to create and expand. By ending this practice, the FTC’s proposed rule will promote greater dynamism, innovation and healthy competition.”
If passed, the proposed rule would give Americans more choice about where they work and higher pay. It would be easier for them to work for competing companies or start their own companies without fear of being sued. Such mobility can do what is already tough hiring economy even tougher as workers have even more options for open positions to fill.
Notice of the proposed rulemaking came the day after the FTC sued three companies because of their non-competition provisions, the first time the agency has done so. This also came after numerous other efforts by the agency to protect competition, including lawsuits to block or terminate mergers and modernization efforts rules for the merger of the commission and the Department of Justice.
The final rule will be posted after an ongoing public comment period. Congress can be viewed and disapprove of a rule that would invalidate it, but this is rare and especially unlikely in a Democratic-majority Senate. Once the rule is final, its legality is likely to be tested in court.
The proposed rule follows calls from human rights groups and the Biden administration to ban the practice of non-competition, so it’s not surprising that Biden is now praising the FTC’s actions. His 2021 Pro Competition order asked the FTC to use its powers to ban non-competition, and consumer advocacy group Public Citizen made the same request to letter to FTC in December last year. Several pro-consumer and worker groups interceded The FTC is in favor of such a rule during the Trump administration. Non-competition provisions have already been banned in several states, including Californiawhere some – but not all – are well known uncompetitive technology companies founded.
The FTC estimates that the proposed rule could increase wages by $300 billion a year and affect 30 million Americans. 2014 poll of economists found that almost 20% of workers have non-compete clauses in their contracts. According to Matt Marks, a professor at Cornell University’s School of Economics and Management who has been studying non-compete agreements for 15 years, that number is likely to be 50 percent for people in high-skill, high-tech jobs.
“I signed my first non-compete waiver in 1995 and didn’t realize what I was doing — and that goes for many if not most workers,” he said.
Marks added that these agreements do not just stipulate that you cannot share the secrets of a particular company, but are often interpreted more broadly so that a person cannot use the skills that he had before working for that company. depletes highly skilled workers and entrepreneurs.
One person Marx interviewed, a woman with a PhD in speech recognition who worked at Bell Labs for almost two decades, said she had to take “computer programming odd jobs” outside her field after she worked 18 months at a startup where she signed a non-compete agreement.
“Have you been in this industry for 20 years? Oh, sorry, you can’t take it anymore because you’ve been with us for two years,” Marx explained. “Unlucky, you need to find something else.”
Opponents of non-compete provisions say the agreements prohibit workers from taking jobs with competitors or even within the same industry. By doing so, they limit job mobility and prevent workers from seeking higher wages, as changing jobs often allows workers to earn higher wages. These items can send them on lengthy job searches or even “career detours“.
Consumer and worker groups have applauded the FTC’s actions, as well as the agency itself.
“Today’s action by the Federal Trade Commission to ban non-compete provisions will also provide a significant boost to small business and entrepreneurship,” Stacey Mitchell, co-director of the Local Self-Reliance Institute, told Recode. She added that non-competition could make it harder for workers to leave employers to start their own businesses that could compete with them.
Senator Elizabeth Warren (D-MA) praised the FTC’s actions to “protect workers” from “harmful contracts.” She tweeted“Non-competition provisions give companies unfair power over workers, allowing them to cut wages and benefits without fear that workers will find new jobs or start their own businesses.”
Pro-employer groups such as the US Chamber of Commerce, argued that non-competition provisions can actually promote competition because they protect “an employer’s special investment in training and disclosure of confidential business information to its employees.” IN statement released shortly after FTC announcement, the organization called the rulemaking “blatantly illegal” because, it said, the FTC does not have the authority to move the rule forward. “When used properly, non-compete agreements are an important tool in stimulating innovation and preserving competition,” the Chamber said in an emailed statement.
Update Feb 7 11:25 pm ET: This story, originally published Jan. 5, was followed up with Biden’s State of the Union call for a ban on non-competition provisions.