Government Proposes Rule to Ban Non-Compete Clauses

Government Proposes Rule to Ban Non-Compete Clauses

The United States Government has proposed a rule that could do away with non-compete clauses.

The Federal Trade Commission proposed a rule earlier today that would ban American employers from imposing non-compete clauses on workers, according to The Associated Press. The sweeping measure could make it easier for people to switch jobs and deepen competition for labor across a wide range of industries.

The proposed rule would prevent employers from imposing contract clauses that prohibit their employees from joining a competitor, typically for a period of time, after they leave the company.

WWE’s non-compete clauses usually run for 90 days on the main roster, and as little as 30 days in WWE NXT.

The proposed FTC rule would require companies to scrap existing non-compete causes and actively inform workers that they are no longer in effect, as well as prohibiting the imposition of new ones.

The proposal is based on a preliminary finding that non-compete clauses quash competition in violation of Section 5 of the Federal Trade Commission Act. It would not generally apply to other types of employment restrictions, like non-disclosure agreements.

President Joe Biden addressed the proposed rule during a Cabinet meeting and called the FTC action “a huge step forward in banning non-compete agreements that are designed simply to lower people’s wages.”

“These agreements block millions of retail workers, construction workers and other working folks from taking better jobs and getting better pay and benefits in the same field,” Biden added.

Advocates of the new rule argue that non-compete agreements contribute to wage stagnation because one of the most effective ways to secure higher pay is to switch companies. They argue that the non-compete clauses have become so commonplace that they have swept up even low-wage workers. Opponents of the proposed rule argue that by facilitating retention, non-compete clauses have encouraged companies to promote workers and invest in training them, especially in a tight labor market.

The American public has 60 days to submit commentary on the rule before it takes effect.

The FTC estimates that the new rule could boost wages by nearly $300 billion a year and expand career opportunities for about 30 million Americans.

“Non-competes 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,” FTC Chair Lina Khan said in a prepared statement.

A 2019 analysis by the liberal Economic Policy Institute estimated that 36-60 million workers could be subject to non-compete agreements, which the group said companies have increasingly adopted in recent years. While such agreements are most common among higher-paid workers, the study found that a significant number of low-wage workers were subjected to them, including more than quarter of those making an average wage of less than $13 an hour. The EPI study also found that many companies still impose non-compete clauses in several states that already ban or restrict them, including in California, where the practice has been prohibited for a century.

On Wednesday, for example, the FTC took action against three companies for unlawfully imposing non-compete clauses against workers, including low-wage security guards who were threatened with a $100,000 fine if they violated the agreement.

Emily Dickens, Chief of Staff and Head of Public Affairs for the Society of Human Resources Management, said the proposed FTC rule is overly broad and could potentially harm businesses that depend on them to thrive. She cited very small, emerging industries where crucial know-how cannot be safeguarded through non-disclosure agreements alone.

Dickens said SHRM, a group of more than 300,000 human resources professionals and executives around the world, will encourage its members to present specific situations that could justify non-compete clauses during the FTC’s commentary period.

Although “there are jobs where it makes no sense to have non-compete,” Dickens said, “this kind of blanket ban is going to stifle innovation.”

While defenders of non-compete clauses argue they help start-ups and small business retain talent, opponents say they hinder recruitment at those same entities.

The Economic Innovation Group, a Washington-based public policy research group, applauded the rule and called on Congress to pass proposed legislation that would impose a similar ban with more permanency.

“Restricting the use of non-compete agreements is fundamentally good policy that will boost wages, improve workforce mobility, and encourage entrepreneurship and innovation throughout the economy,” said John Lettieri, EIG’s president and CEO.

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