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- The Federal Trade Commission proposed a rule that would ban noncompete clauses.
- Noncompetes prevent some workers in low-wage jobs from leaving for better opportunities.
- Advocates for banning noncompetes say the move would be a win for worker rights.
One way to tell how much an employer cares about treating everyday workers fairly isn’t by what it says, it’s by whether the company makes low-wage workers sign noncompete agreements.
In theory, noncompetes are meant to protect a company from having a high-level executive with inside info jump to a competitor or start a rival shop. But in practice, things are a lot murkier.
The Federal Trade Commission is now challenging the longstanding practice, saying the 109-year law is exploitative and unfair.
If the FTC succeeds in banning noncompete clauses, it can be an important win for low-wage workers and a pivotal moment in the push for workplace equity, advocates for the change say. The proposed rule could, in effect, force more companies to offer up what they boast about in job listings: fair working conditions and competitive pay.
Jimmy O’Donnell, a former researcher with the Economic Innovation Group, a bipartisan public-policy-research organization, said that noncompetes “strip workers of their autonomy.”
“Banning the use of non-compete agreements would go a long way in raising wages for workers and empowering more would-be entrepreneurs to start new companies,” he wrote in a 2021 blog post.
Many low-wage workers are forced to abide by noncompetes
Noncompetes cost workers almost $300 billion a year in lost income by preventing people from taking their skills to another employer for more money, according to the FTC.
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Critics point out that many workers subject to noncompete language aren’t high-profile executives who’ve amassed trade secrets — they’re average workers.
In 2015, The Verge reported on Amazon’s use of noncompete agreements for warehouse workers. After criticism, the retail giant removed the clause from contracts for US hourly workers, news outlets including The Guardian reported. The next year, Jimmy John’s, a sandwich chain, dropped its use of noncompetes after a settlement. And in 2017, an employee at a McDonald’s franchise sued her employer over such rules.
“Noncompetes are being used systematically, even for workers who have no access to trade secrets or less than a college education,” Evan Starr, an assistant professor at the University of Maryland, told The Baltimore Sun in 2017.
Charlotte Garden, a law professor at the Seattle University School of Law, told The Verge that employers knew they could prey on people with limited power to negotiate their employment terms.
“When you have a more-vulnerable workforce applying for jobs,” Garden said, “they’re not going to attempt to negotiate the terms of the contract they’re handed.”
That lowers wages for all workers, the FTC said.
“One of the key ways workers get raises in our economy is they change jobs,” Heidi Shierholz, the Economic Policy Institute’s policy director, told CBS in 2019. “If you take away that avenue, it hurts wage growth.”
Noncompetes cost workers almost $300 billion a year in lost income by preventing people from taking their skills to another employer for more money or better conditions, the FTC said.
There are other ways employers can protect their secrets
There are alternatives to noncompetes that can shield employers from losing important intellectual property when a skilled employee leaves for a competitor or to start a company. Businesses can have employees sign nonsolicitation agreements that prevent workers from wooing colleagues or customers to take them to a competing company. Bosses can also have employees sign nondisclosure agreements relating to trade secrets, a lawyer at the firm Morgan & Westfield noted.
Paul Constant, an editor at Civic Ventures, a progressive advocacy group and a cohost of the “Pitchfork Economics” podcast, wrote an op-ed challenging the fairness of noncompetes in 2021.
“Noncompete agreements help artificially stifle competition in the labor market, allowing employers to keep wages low by limiting workers’ employment options,” Constant wrote. “They eliminate the only real leverage American employees have left — the threat that they can leave and find work somewhere else for better pay, benefits, and workplace standards.”