The Federal Trade Commission (FTC) announced on Thursday that it has proposed a sweeping new rule that would bar employers from imposing noncompete clauses on workers, a move that could have major benefits for tens millions of workers across the U.S.
The FTC said that employers’ use of noncompete clauses, which typically prohibit workers from moving jobs to competitors within certain time frames, is “a widespread and often exploitative practice.” Such clauses hamper worker choice within the job market, suppresses workers’ wages and discourages competition and innovation, the agency said.
The proposal comes after antitrust regulators found on a preliminary basis that noncompete clauses are in violation of Section 5 of the Federal Trade Commission Act, which prohibits “unfair or deceptive acts or practice” that could impede competition and under which the FTC is increasingly attempting to flex its regulatory power. The rule would prohibit employers from attempting to enter into a noncompete with workers and require employers to rescind current noncompete clauses.
If enacted, the rule would give 30 million workers more career opportunities and could raise wages by a collective $300 billion annually, according to the agency. This would represent a major win for workers in a job market that is largely stacked against them, as Treasury Department analysts have found, and give some power back to workers in their ability to bargain with employers and choose their career paths.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina Khan in a statement. “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. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
Khan added in a call with reporters on Wednesday, per The Washington Post, that noncompetes essentially “loc[k] up workers” and that the new rule “would force employers to compete more vigorously over workers in ways that should lead to higher wages and improved working conditions, basically injecting competition into the labor market.”
The FTC voted three to one to publish the proposed rule, with the lone “no” vote coming from the sole Republican on the board. The FTC is now seeking public comment on the proposal.
“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages — even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, FTC Director of the Office of Policy Planning. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”
Indeed, surveys have found that between 18 percent and 47 percent of workers are bound to noncompete clauses, representing a wide variety of industries, with the Economic Policy Institute finding in 2019 that roughly half of responding businesses use noncompete clauses. Wages are lower in states that allow enforcement of noncompetes, research finds — and, even in states where it is illegal to enforce noncompete clauses like California, employers still use them to pressure workers who may not be aware of the law.
Eliminating the use of noncompetes could have the immediate effect of increasing wages. In Hawaii, for instance, one study found that wages for tech workers rose by 4 percent after the state banned the use of noncompetes; another study of Oregon, which mandated in 2008 that new noncompetes become unenforceable, found that hourly workers’ wages rose by 2 to 3 percent after the new rule went into place.
Even though noncompete clauses have such broad impacts on individual workers and industries at large, workers often view noncompetes as relatively inconsequential, and would rather sign one than negotiate over terms with employers. Employers will also often shuffle noncompete clauses in with long contracts or other paperwork, making them harder for workers to detect before signing them.
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.