Federal regulators on Tuesday [April 23, 2024] enacted a nationwide ban on new noncompete agreements, which keep millions of Americans — from minimum-wage earners to CEOs — from switching jobs within their industries.
The Federal Trade Commission on Tuesday afternoon voted 3-to-2 to approve the new rule, which will ban noncompetes for all workers when the regulations take effect in 120 days [So, the ban starts in early September, 2024!]. For senior executives, existing noncompetes can remain in force. For all other employees, existing noncompetes are not enforceable.
[That's right: if you're currently under a noncompete agreement, it's completely invalid as of September 2024! You're free!!]
The antitrust and consumer protection agency heard from thousands of people who said they had been harmed by noncompetes, illustrating how the agreements are "robbing people of their economic liberty," FTC Chair Lina Khan said.
The FTC commissioners voted along party lines, with its two Republicans arguing the agency lacked the jurisdiction to enact the rule and that such moves should be made in Congress...
Why it matters
The new rule could impact tens of millions of workers, said Heidi Shierholz, a labor economist and president of the Economic Policy Institute, a left-leaning think tank.
"For nonunion workers, the only leverage they have is their ability to quit their job," Shierholz told CBS MoneyWatch. "Noncompetes don't just stop you from taking a job — they stop you from starting your own business."
Since proposing the new rule, the FTC has received more than 26,000 public comments on the regulations. The final rule adopted "would generally prevent most employers from using noncompete clauses," the FTC said in a statement.
The agency's action comes more than two years after President Biden directed the agency to "curtail the unfair use" of noncompetes, under which employees effectively sign away future work opportunities in their industry as a condition of keeping their current job. The president's executive order urged the FTC to target such labor restrictions and others that improperly constrain employees from seeking work.
"The freedom to change jobs is core to economic liberty and to a competitive, thriving economy," Khan said in a statement making the case for axing noncompetes. "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."
Real-life consequences
In laying out its rationale for banishing noncompetes from the labor landscape, the FTC offered real-life examples of how the agreements can hurt workers.
In one case, a single father earned about $11 an hour as a security guard for a Florida firm, but resigned a few weeks after taking the job when his child care fell through. Months later, he took a job as a security guard at a bank, making nearly $15 an hour. But the bank terminated his employment after receiving a letter from the man's prior employer stating he had signed a two-year noncompete.
In another example, a factory manager at a textile company saw his paycheck dry up after the 2008 financial crisis. A rival textile company offered him a better job and a big raise, but his noncompete blocked him from taking it, according to the FTC. A subsequent legal battle took three years, wiping out his savings.
-via CBS Moneywatch, April 24, 2024
Note:
A lot of people think that noncompete agreements are only a white-collar issue, but they absolutely affect blue-collar workers too, as you can see from the security guard anecdote.
In fact, one in six food and service workers are bound by noncompete agreements. That's right - one in six food workers can't leave Burger Kings to work for Wendy's [hypothetical example], in the name of "trade secrets." (x, x, x)
Noncompete agreements also restrict workers in industries from tech and video games to neighborhood yoga studios. "The White House estimates that tens of millions of workers are subject to noncompete agreements, even in states like California where they're banned." (x, x, x)
The FTC estimates that the ban will lead to "the creation of 8,500 new businesses annually, an average annual pay increase of $524 for workers, lower health care costs, and as many as 29,000 more patents each year for the next decade." (x)
Clearer explanation of noncompete agreements below the cut.
