On Thursday, the U.S. Federal Trade Commission proposed a rule prohibiting companies from asking workers to sign noncompete agreements and some training repayment arrangements. This is a way for workers to stay in better jobs.
Lina Khan, FTC Chairperson, said that noncompete agreements “block employees from freely switching jobs and deprive them of higher wages as well as better working conditions and deprive businesses of the talent pool that is needed to build and expand.”
This proposed rule is and it’s the latest sign of the Biden administration supporting labor. This includes backing a measure that would make it more difficult for an employer to label a person an “independent contract”, which in turn means fewer legal protections and benefits.
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Both President Joe Biden as well as Senate Majority Leader Chuck Schumer were pleased with the FTC’s steps toward banning noncompete provisions. Biden said that they are “designed simply lower people’s wages.”
Schumer claimed that the provisions held American workers “hostage for decades.”
The agency calculated that, if this rule was implemented, U.S. workers would see their wages rise by $300Billion per year and that an estimated 30 Million Americans would have better job opportunities.
The rule, which could take several months to come into effect, would require all companies that have noncompete agreements to end them and notify current and past employees.
Companies would be able to stop workers from being required to reimburse them for training if the worker leaves before a set period of time. This is a strategy companies started using after noncompete provisions became more difficult to scrutinize. The proposed rule stated that the repayment for training would be banned if it is not “reasonably related to the costs the employer has incurred for training workers.”
Sarah Miller, executive director at the American Economic Liberties Project, said that the rule was welcomed by her. “Coercive noncompete arrangements have unfairly denied millions to working people freedom to change jobs and negotiate for better wages and start new companies.”
Sean Heather, an antitrust expert from the U.S. Chamber of Commerce, stated that they are considering suing to stop this rule, but not right away.
Heather stated that they were considering legal action, stating that Heather didn’t believe the FTC had statutory authority for rules on competition matters.
According to Kristen Limarzi (partner at Gibson Dunn & Crutcher LLP) and a veteran of U.S. Department of Justice’s Antitrust Division, there are likely to be challenges. These will center on whether Congress explicitly authorized the FTC adopt nationwide bans.
She said that non-compete clauses are widely used in some areas of the country. There will be large employers as well as interest groups like the Chamber who will be motivated to contest the rule.
Richard Powers is a former acting head at the Justice Department’s Antitrust Division. He said that it was difficult to know if an FTC ruling would be upheld in a legal challenge. Powers, now at Fried Franck, stated that “I think it is probably one of the most important questions.”
The new rule was made public a day following the agency’s announcement that two major glass container producers and a security company had agreed to end their noncompete requirements.
O-I Glass Inc. and Ardagh Glass S.A., the two largest U.S. manufacturers of glass containers, had noncompete clauses that affected more 1,700 workers. O-I Glass stated that the company must give written consent to allow former workers to be employed by another company in the same industry. Ardagh was known for preventing former workers from being hired by another company for two-years.
FTC commissioner Rebecca Slaughter claimed in 2020 that surveys had estimated that 16%-18% of U.S. workers are under noncompete provisions. The Cornell Survey Research Institute reported that nearly 10% of American workers who were surveyed in 2020 were protected by a training repayment agreement.