Under the Biden Administration, the Federal Trade Commission is finally looking to do something about noncompete clauses that stifle competition, repress wages, and force workers to stay in deadbeat jobs.
The agency – normally headed by five commissioners but presently with only four – has proposed a rule that will make it clear that noncompete clauses are a violation of Section 5 of the FTC Act, which prohibits unfair restrictions on competition.
The proposal is currently in the required 60-day comment period, but it stands a very good chance of passage, with all three Democrats – Chairwoman Lina M. Khan, Alvaro Bedoya, and Rebecca Kelly Slaughter supporting it.
Slaughter previously worked with Chuck Schumer and was first appointed by Trump in 2018 (he needed to appoint at least one Democrat based on FTC rules).
Bedoya was approved by the Senate in May of 2022 after VP Kamala Harris cast the tie-breaking vote.
Khan is a liberal hero who has worked as an associate professor of law at Columbia and is known for her outstanding and crusading research exposing the damage caused by anti-competitive practices.
As it is now, the legality of noncompete clauses can vary from state to state, with certain states, like California, holding them essentially null and void, while others permit them.
Yet even in states wherein the clauses are considered illegal or where most are considered illegal (some states only allow it for certain pay grades), employers still put them into contracts hoping that employees will not know the law.
Part of the goal of the new rule would be to clarify a unified standard for the entire country.
In her letter explaining the FTC’s position, cosigned by Slaughter and Bedoya, Khan emphasized that ridding workers of noncompete clauses would likely generate around $300 billion in wages and would bring down costs for consumers – almost all of whom are either middle-class and lower-income – around $150 billion.
This is not to say that employers would not have any other resources by which to bind employees and keep certain information secret that may legitimately need to be kept so.
They could still use nondisclosure clauses; potentially have noncompete clauses for certain, higher-paid positions (once the rule is fully set), and use non-solicitation contracts to stop former employees from poaching clients.
And, of course, there’s never been a time in history that corporations haven’t eventually found a way to get around the law, requiring constant vigilance and new laws to be passed. Many businesses are already making adjustments, in fact.
In a similar vein, we can expect that big businesses will fight the rule change, and that it could meet some significant obstacles.
In a Substack post, economist and former Secretary of Labor Robert Reich wrote: “House Republicans will try to kill it. I expect corporate America to appeal it up to the Supreme Court, which is hostile to independent regulatory agencies such as the FTC.”
While we were fixated on Kevin McCarthy’s travails last week, the FTC proposed a sweeping new rule that would ban non-compete agreements.
These clauses trap 30 million Americans in their jobs and keep them from getting better pay.
This is a very big deal.https://t.co/B72zFnPyz0
— Robert Reich (@RBReich) January 10, 2023
Regardless, the new rule could be a huge win for workers, demonstrating yet again why it makes a difference when a president puts common people above corporate greed.
For more kick-ass pieces, follow Ross on Twitter by clicking on @RossRosenfeld.