The Federal Trade Commission on Thursday proposed a new rule to prohibit the use of non-compete clauses in worker contracts, a change that would significantly boost the bargaining power of employees.
The proposal builds on the FTC’s finding that non-compete clauses violate its fair trading laws, and the agency called them a «pervasive and often exploitative practice that suppresses wages, stifles innovation, and locks out entrepreneurs.» so they don’t start new businesses.»
The FTC estimates that the new rule could increase wages by about $300 billion a year.
“The freedom to change jobs is fundamental to economic freedom and to a prosperous and competitive economy,” FTC Chairman Lina M. Khan said in a statement. “Those who don’t compete prevent workers from freely changing jobs, depriving them of higher wages and better working conditions, and depriving companies of a talent pool they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.»
Non-compete clauses, legal stipulations that prevent workers from going to work or starting a competing business within a certain period of time after leaving a job, are used in a variety of industries and job levels. Their use has grown in recent years, and many economists believe they are a major contributing factor to stagnant wages. According to one 2019 study by the left-wing Economic Policy Institutebetween a quarter and about half of all workers are subject to non-compete clauses.
“Given the ubiquity of non-compete agreements, the real damage they inflict on workers and competition, and the fact that they are part of a growing trend of employers requiring their workers to waive their rights as a condition of employment , non-compete agreements can and should be prohibited. either through legislation or regulation,” the institute said in the study.
The FTC said that 1 in 5 workers are subject to non-compete clauses.
The agency voted 3-1 on the rule, with Christine Wilson, an appointee of then-President Donald Trump, voting against it. Wilson said she believed the rule was outside the FTC’s purview and would be vulnerable to legal challenges.
“The proposed No-Compete Rule represents a radical departure from hundreds of years of legal precedent that employs a fact-specific investigation of whether a non-compete clause is unreasonable in length and scope, given the business justification for the restriction.” , said. he said she in a statement.