Millions of workers are subject to noncompete agreements. They could soon be banned

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January 5th, 2023

The FTC proposed a new rule banning noncompete agreements. Federal Trade Commission chair Lina M. Khan calls them exploitative and widespread. (Graeme Jennings/Washington Examiner via AP, Pool, File)

The Federal Trade Commission took an a bold move on Thursday aimed at shifting the balance of power from companies to workers.

The agency proposed a new rule that would prohibit employers from imposing noncompete agreements on their workers, a practice it called exploitative and widespread, affecting some 30 million American workers.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina M. Khan in a statement. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”

Noncompete agreements restrict workers from quitting their jobs and taking new jobs at rival companies or starting up similar businesses of their own within a certain time period — typically between six months and two years. They’re used across a broad array of industries, including in high-paying white-collar fields such as banking and tech, but also in many low-wage sectors as well, as President Biden has pointed out.

“These aren’t just high-paid executives or scientists who hold secret formulas for Coca-Cola so Pepsi can’t get their hands on it,” Biden said in a speech about competition in 2021. “A recent study found one in five workers without a college education is subject to non-compete agreements. They’re construction workers, hotel workers, disproportionately women and women of color.”

Employers have argued that they need noncompetes to protect trade secrets and investments they put into growing their businesses, including training workers.

A handful of states including California and Oklahoma already ban noncompetes, and a number of other states including Maryland and Oregon have prohibited their use among lower-paid employees. But those rules are difficult to enforce, with low-wage workers often reluctant to speak out.

The FTC estimates that a ban on noncompete agreements could increase wages by nearly $300 billion a year by allowing workers to pursue better opportunities.

The rule does not take effect immediately. The public has 60 days to offer comment on the proposed rule, after which a final rule could be published and then enforced some months after that.

The FTC will likely face legal challenges, including on whether it even has the power to regulate noncompete agreements. The agency says the proposed rule is based on a preliminary finding that noncompetes constitute an unfair method of competition and therefore are a violation of the Federal Trade Commission Act. The 1914 law gives the government power to prevent unfair methods of competition and investigate unfair or deceptive acts that affect commerce.

Copyright 2023 NPR. To see more, visit https://www.npr.org.

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