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The Federal Trade Commission on Thursday proposed new rules banning the use of non-compete clauses in worker contracts. This greatly increases the bargaining power of employees.
The proposal builds on the FTC’s findings that non-compete clauses violate fair trade laws, and the agency called them “stifling wages, stifling innovation, and discouraging entrepreneurs from starting new businesses.” pervasive and often exploitative practices that impede
The FTC estimates that the new rule could increase wages by about $300 billion annually.
“Job freedom is at the heart of economic freedom and a competitive and prosperous economy,” FTC Chairman Lina M. Khan said in a statement. It robs us of higher wages and better working conditions, and the talent pool that businesses need to build and expand in. By ending this practice, the FTC’s proposed rule will create greater dynamism, innovation, and health. It will encourage more competition.”
Non-compete clauses — legal provisions that prohibit workers from taking up or starting competing businesses for a specified period of time after leaving their jobs — are used across a wide range of industries and job levels. I’m here. Their use has increased in recent years, and many economists believe they are an important factor contributing to stagnant wages.
The FTC says 1 in 5 workers are bound by a non-compete clause.
A 2019 study by the left-leaning Economic Policy Institute found that between a quarter and about half of all workers are covered by non-compete clauses.
President Joe Biden welcomed the move. “These agreements are preventing millions of retail workers, construction workers and other workers from getting better jobs, better wages and benefits in the same sector.” He told reporters on Thursday.
Advocates of non-competition see it as an incentive for companies, especially those in highly skilled jobs, to invest in their employees with the comforts those expenditures bring. It’s also one of his ways companies protect highly sensitive information from being passed on to competitors.
However, some studies suggest that increased use of non-competition laws may have a negative impact on workers’ wages as it restricts the movement of workers and can limit the competition that drives the economy. indicates that
According to a Minneapolis Federal Reserve study, “First, non-competition lowers wages for low-wage workers.” Second, low-wage workers receive more legal advice than other workers. Fewer opportunities make it difficult to have informed and fair negotiations with employers about non-compete agreements.”
Non-compete clauses have been reported at companies including sandwich chain Jimmy Johns. For two years, this prohibited workers from working at companies within three miles of a company-operated store where he earned more than 10 percent of the proceeds from the sale of sandwiches. Even some temporary warehouse workers have signed non-compete obligations, according to his 2015 report for The Verge. Some summer camps even use them, and companies have even hired them during internships.
Jimmy Johns did not immediately respond to NBC News’ request for comment, but agreed to drop the practice in 2016 after legal pressure from several state attorneys general. Amazon did not immediately respond to a request for comment.
A survey of more than 11,000 workers found that a third of them learned about non-compete clauses only after accepting a job offer, and found that their ability to negotiate the issue was limited. understood. His 2015 survey, published in the Journal of Law and Economics, also found that only his 10% of employees negotiated the clause. Most thought it was non-negotiable or could cause problems with employers.
Kenneth Dau-Schmidt, an employment law expert at Indiana University, argues that non-compete clauses primarily apply to employees in the highest-level positions (CEOs and other executives, research scientists, high-level engineers). I said it makes sense when used. Widely use the necessary actions.
“They are being put to ridiculous extremes and as a result, they are starting to hurt our economy. Our labor market is less competitive than it used to be,” he said. rice field.
Dau-Schmidt said he hopes the FTC’s proposal will provoke backlash from the business community and will likely end up being more targeted.
The agency voted 3-1 on the rule, with Trump’s appointee Christine Wilson voting against it. Wilson said the rule he believes is outside the scope of the FTC and subject to legal challenges.
“The proposed non-compete clause rule would employ hundreds of years of fact-based inquiry into whether a non-compete clause is unreasonable in duration and scope given the business justification for the restriction. It represents a fundamental departure from long-standing case law,” it said in a statement.
The FTC plans to allow a 60-day comment period on the proposed rule before finalizing it later this year.
Ted Sichelman, a law professor at the University of San Diego who has written positively about non-compete clauses, said he thinks the FTC’s proposals go too far. Sichelman has co-authored a prominent analysis of studies critical of non-compete obligations, many of which he says are based on a misunderstanding of state law.
“Non-competition is very important for many companies, especially those that rely on trade secrets,” he said.
He said he could support rules that seek to eliminate non-competition for low-wage work.
The Chamber of Commerce has condemned the FTC’s proposal, saying it doesn’t think it can stand up in court.
“Today’s action by the Federal Trade Commission to outright ban non-compete clauses in all employer contracts is clearly illegal,” senior vice president Sean Heather said in a statement. “Attempting to ban non-compete clauses in all employment situations undermines established state laws that have long governed their use, and when properly used, non-compete agreements discourage innovation. It ignores the fact that it is an important tool to promote and stay competitive.”
At least 10 states prohibit the application of non-compete obligations by lowering wages for low-wage workers. A 2021 study found that banning opposition to the Low Wage Workers Clause in Oregon increased wages by 2-3%.
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