U.S. companies will no longer be able to prevent employees from taking jobs at competitors under rules approved by a federal agency on Tuesday, but the rules are certain to be challenged in court.
The Federal Trade Commission voted 3-2 on Tuesday to pass a resolution banning measures known as “noncompete agreements,” which prohibit employees from jumping ship or joining a competing company for a set period of time. According to the FTC, 30 million workers, or about one in five workers, are currently subject to these restrictions.
The Biden administration has targeted anti-competes, which typically target senior executives at technology and financial companies but have also in recent years targeted low-wage workers such as security guards and sandwich shop workers. There is.
A 2021 study by the Federal Reserve Bank of Minneapolis found that more than 1 in 10 workers making less than $20 an hour are subject to noncompete agreements.
In proposing the ban in January 2023, FTC officials argued that noncompete agreements reduce the ability to change jobs for higher wages, a measure that typically provides the largest raises for most workers. He argued that it would harm workers.
The agency argued that the measure would also disadvantage workers who are not eligible for it by reducing overall turnover in the job market, as fewer people leave and fewer jobs are available.
It could also limit the ability of other businesses to hire needed employees, which could have a negative impact on the overall economy, the FTC said.
The rule, which does not apply to nonprofit workers, is expected to go into effect within four months unless it is blocked by legal challenges.
“Non-compete clauses keep wages low, stifle new ideas, and take away the dynamism of the American economy,” said FTC Chair Lina Khan. “We have heard from employees who are stuck in abusive workplaces because of non-competitive behavior.”
He added that some doctors are prevented from practicing medicine after leaving their practices.
Business groups have criticized the measure as casting a too wide net by blocking nearly all non-competitor companies. They argue that highly paid executives can often earn more compensation in exchange for accepting a non-compete.
“This is going to be a big change,” said Amanda Sonneborn, a partner at King & Spalding in Chicago who represents employers who use noncompete laws. “They don’t want someone to go to a competitor and take their customer list or take information about their business strategy to a competitor.”
But Alexander Herzel Fernández, a former Biden administration Labor Department official and professor at Columbia University, argued that low-income workers lack the ability to bargain over such provisions.
“When they get a job offer, it’s really a take-it-or-leave-it choice,” he says.
The U.S. Chamber of Commerce announced Tuesday that it will file a lawsuit to block the rule. He accused the FTC of overstepping its authority.
“Non-compete agreements can be upheld or rejected based on established state laws governing their use,” said Suzanne Clark, the chamber’s CEO. ” he said. “But today, three unelected commissioners moved to ban non-compete agreements in all sectors of the economy, giving them the power to declare what is a legitimate business decision and what is not. It was unilaterally decided that there is.
Two Republican appointees to the FTC, Melissa Holyoake and Andrew Ferguson, voted against the proposal. They argued that the agency exceeded its authority by approving such a blanket rule.
Three states, including California, ban non-compete agreements, and some anti-compete opponents argue that California’s ban contributes significantly to the state’s innovative high-tech economy. .
John Lettieri, CEO of the Economic Innovation Group, a technology support think tank, believes the ability of early innovators to leave one company and start a competitor is key to the semiconductor industry’s progress. claim that it was.
“The birth of so many important foundational companies would not have happened, at least not in the same way, on the same timeline, and certainly not in the same place, had it not been for the entrepreneurs’ ability to strike out on their own.” If not, you should go to a better company,” Lettieri said.
As the presidential campaign heats up, the White House is stepping up efforts to protect workers. The Labor Department on Tuesday announced rules that guarantee overtime pay to lower-wage workers. The rule would increase the minimum salary level required to exempt employees from overtime pay, from the current level of about $35,600 to about $43,900 starting July 1 and to $50,000 by January 1, 2025. This will increase to $8,700.
Companies are required to pay overtime pay to workers who work more than 40 hours a week below this threshold.
“This rule restores the promise to workers that if they work more than 40 hours in a week, they must be paid more for those hours,” said Acting Labor Secretary Julie Hsu. “It will be.”
