Topline
The Federal Trade Commission put forward new legislation Thursday seeking to outlaw commonly used non-compete agreements between workers and employers, alleging the policy stifles competition and promotes worse outcomes for workers.
A new rule could bar non-competes in the U.S.
Key Facts
Non-compete clauses, a common component of labor contracts which bar employees from working for a rival firm after the end of employment, typically for between six months and two years, go against the principles of “healthy competition,” FTC chairwoman Lina M. Khan said in a statement.
The federal antitrust body estimates that the end of non-compete agreements would result in $300 billion in additional wages for roughly 30 million Americans impacted by the clauses, citing research that shows the restriction of “workers’ mobility significantly suppresses workers’ wages” by limiting the market of employers available to individuals.
The FTC will hear feedback on the proposal for 60 days before pushing to sign it into law, and President Joe Biden called on the agency to ban or limit non-competes in a 2021 executive order.
Key Background
About half of all employers use non-competes, according to a 2019 survey from the Economic Policy Institute, while about a fifth of all American workers are subject to the agreements. The clauses, which are typically justified as a means to protect employees from sharing confidential information or trade secrets, largely result in lower wages as they limit bargaining ability, according to various studies.
Tangent
The potential death of non-competes comes at a particularly tumultuous time for the labor market, with a historic number of Americans quitting their jobs amid the “Great Resignation.” The turnover has helped spark a record increase in wages, which the Federal Reserve says is a chief contributor to the highest inflation in decades.
Further Reading
Non-compete contracts: Potential justifications and the relevant evidence (Brookings)
To Compete, or Non-Compete: The Effects of Employee Non-Compete Agreement (Harvard Kennedy School)
