For anyone who has ever been forced to sign a non-compete clause to gain employment, a new era may be dawning in the US. The Federal Trade Commission on Thursday released a rule that would prevent corporations from restricting their employees' access to work for a rival, a significant move that might enhance wages and commercial competitiveness.
The non-compete clauses in employment contracts, which forbid employees from joining a rival company or launching a rival business for months or years after leaving their employment, frequently within a specific geographic area, would be prohibited under the new rule. Workers as diverse as sandwich makers, hair stylists, physicians, and software engineers have been covered by the agreements.
For millions of American workers, non-compete clauses keep them working for low wages because the “only thing they know” is something they aren't allowed to do outside of their present employment.
"Research shows that employers' use of non-competes to restrict workers' mobility significantly suppresses workers' wages—even for those not subject to non-competes, or subject to non-competes that are unenforceable under state law," said Elizabeth Wilkins, Director of the Office of Policy Planning said in a Federal Trade Commission statement. "The proposed rule would ensure that employers can't exploit their outsized bargaining power to limit workers' opportunities and stifle competition."
If the rule is adopted, it could create wealth for millions of middle-class workers. One of the most frequent ways to secure a raise is to switch employers, but a non-compete clause can effectively prevent workers from doing that. This might force employers, particularly large corporations, to either pay more or risk having their current employees leave and move to a new company.
The rule is expected to increase American wages by almost $300 billion a year.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina M. Khan in an FTC.gov press release. “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. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
The FTC will seek public comment on the new rule for 60 days. The agency can then move to make it final. The new rule is expected to become effective 180 days after the final ruling. This means that as soon as early September 2023, employees with non-compete clauses may find themselves free to make decisions about their employment as they see fit instead of being beholden to their current employer at whatever wage the employer wishes to pay.
Image by Tiffany & Co. - Extracted from PDF version of the FTC's 2007 Annual Report, with colors changed slightly to more closely match the version on the FTC's home page (and other versions of the seal in the PDF)., Public Domain, https://commons.wikimedia.org/w/index.php?curid=2715121
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