U.S. targets non-compete clauses block workers’ freedom to switch jobs?

The U.S. Federal Trade Commission enforces antitrust law and proposed Thursday a rule to ban companies from requiring workers sign noncompete clauses as well as certain training repayment agreements. These agreements are used by companies to prevent workers from moving to better jobs.

Lina Khan, FTC Chair, stated that noncompete agreements “block workers’ freedom to switch jobs, depriving these workers of higher wages, better working conditions, as well as depriving businesses the talent pool they need to grow and build,” in a statement.

The rule proposed is . This is the latest sign by the Biden administration that it supports labor. It includes backing a measure to make a harder for employers to classify a person “independent contractor” which, in turn, means less legal protections and benefits.

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Both President Joe Biden, and Senate Majority Leader Chuck Schumer applauded the FTC’s step towards banning noncompete clauses. Biden stated that they were “designed simply to lower people’s wages.”

Schumer stated that the provisions had held American workers captive for many decades.

According to the agency, if the rule is implemented, U.S. workers’ wages would increase by $300 billion annually and approximately 30 million Americans would have more career options.

This rule could take months to become effective. It would require noncompete agreements that are in place to be scrapped by companies and inform all employees, current and former, about their cancellation.

The rule would also prohibit companies from requiring workers not to pay for certain types of training if they leave within a specified time. This was a strategy that companies used when noncompete provisions were more scrutinized. According to the rule, the training repayment would be prohibited if it was not reasonable related to the cost incurred by the employer for training the worker.

Sarah Miller, the American Economic Liberties Project’s executive director, welcomed the rule. She stated that “coercive nocompete agreements have unfairly denied millions working people the freedom of changing jobs, negotiating for better wages, and starting new businesses.”

According to Sean Heather, an antitrust expert, the U.S. Chamber of Commerce may sue to end the rule, but not immediately.

Heather said that “we are considering legal action”, adding that Heather did not believe the FTC had the legal authority to issue rules on competition issues.

There are likely to be challenges to the rule. They will focus on whether Congress authorized the FTC’s adoption of nationwide bans on anticompetitive practices. Kristen Limarzi is a partner at Gibson Dunn & Crutcher LLP, and a veteran of the U.S. Department of Justice Antitrust Division.

She stated that non-compete clauses were widely used in certain parts of the country and that large employers and interest groups such as the Chamber will be motivated to challenge this rule.

Richard Powers, the former acting head for the Justice Department’s Antitrust Division said that it is difficult to predict if the FTC rule will survive legal challenges. Powers, who is now with Fried Frank, said that “I believe it’s probably one the top questions.”

The new rule was published a day after , the agency, announced two large glass container manufacturers and a security firm had agreed to remove noncompete requirements.

O-I Glass Inc and Ardagh Glass S.A. were the largest U.S. container manufacturers. They had noncompete provisions that affected over 1,700 workers. For two years, Ardagh prohibited former workers from working for another company similar to it. O-I Glass required that former workers give written permission for them to accept new jobs in the industry.

FTC Commissioner Rebecca Slaughter stated that in 2020, surveys showed that between 16% and 18% of all U.S. workers were subject to noncompete provisions. According to the Cornell Survey Research Institute, almost 10% of American workers were covered by a training repayment arrangement in 2020.

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