February 6, 2023

The FTC has proposed a brand new rule banning non-compete agreements. FTC Chair Lina M. Khan calls them exploitative and widespread.

Graham Jennings/Getty Photographs

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Graham Jennings/Getty Photographs

The FTC has proposed a brand new rule banning non-compete agreements. FTC Chair Lina M. Khan calls them exploitative and widespread.

Graham Jennings/Getty Photographs

On Thursday, the Federal Commerce Fee took a daring step to shift the stability of energy from corporations to staff.

The company proposed a brand new rule that will prohibit employers from imposing noncompete agreements on their staff, a apply it referred to as exploitative and widespread, affecting about 30 million American staff.

“Freedom to alter jobs is the muse of financial freedom and a aggressive, affluent economic system,” FTC Chair Lina M. Khan mentioned in an announcement. “Non-competition prevents staff from freely altering jobs, depriving them of upper wages and higher working situations, and depriving enterprises of the expertise pool they should construct and broaden.”

Non-compete agreements prohibit staff from leaving their jobs and taking new jobs at competing corporations or beginning related companies of their very own for a specified time frame—usually six months to 2 years. They’re utilized in all kinds of industries, together with high-paying sectors reminiscent of banking and know-how, in addition to many low-wage sectors, as President Biden identified.

“It’s not simply extremely paid executives or scientists who’ve the key formulation for Coca-Cola in order that Pepsi can’t get to them,” Biden mentioned in his 2021 speech on competitors. “A latest examine confirmed that one in 5 staff with out a school diploma are lined by non-compete agreements. They’re development staff, lodge staff, disproportionately girls and ladies of coloration.”

Employers argue that they want non-competition to guard commerce secrets and techniques and the investments they make in rising their enterprise, together with worker coaching.

A number of states, together with California and Oklahoma, have already banned non-competition, and a variety of different states, together with Maryland and Oregon, have banned their use amongst low-paid workers. However these guidelines are exhausting to implement as a result of low-wage staff are sometimes reluctant to talk up.

The Federal Commerce Fee estimates {that a} ban on non-compete agreements might enhance wages by almost $300 billion a 12 months, permitting staff to hunt higher alternatives.

The rule doesn’t take impact instantly. The general public has 60 days to touch upon the proposed rule, after which the ultimate rule may be revealed after which implement a number of months after that.

The FTC is more likely to face authorized challenges, together with whether or not it has the ability to manage non-compete agreements. The company says the proposed rule relies on a preliminary discovering that non-competition constitutes an unfair technique of competitors and is subsequently a violation of the Federal Commerce Fee Act. The 1914 Act provides the federal government the ability to forestall unfair practices of competitors and to analyze unfair or deceptive practices affecting commerce.

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