The FTC wants to ban non-compete clauses, allowing roughly 30 million workers to make more money

In July 2021, Joe Biden summoned his inner concerned father and implored the Federal Trade Commission (FTC) to take a long, hard look in the bureaucratic mirror and think about competition in American business. In an executive order, the president implored the agency to, among many other things, “curtail the unfair use of non-compete clauses” in employment agreements, citing how they “may unfairly limit worker mobility.”

Last week, the FTC emerged from its bedroom with the gusto of a caffeinated teenager fresh off a TikTok binge and announced a plan to ban non-compete clauses nationally. Non-competes vary in size and scope, but are generally an employment agreement between two entities, wherein one party agrees not to engage in “conduct that would increase competition for the other party for a specific period of time,” according to Cornell Law School.

Scuttling non-competes could not only change employment dynamics for workers who seek more mobility and higher wages, but change the agency’s oversight of national labor market dynamics, William C. Stonehouse III, co-founder and president of Crawford Thomas Recruiting, told HR Brew. The FTC hasn’t traditionally intervened in the non-compete issue, “because it’s always been left to the states to determine the workers’ rights and employment status,” he said. Various states, including California, Rhode Island, and North Dakota, have rules restricting non-competes.

While the FTC proposal is currently accepting public feedback, Stonehouse explained how a blanket ban on non-competes would affect many parties, chief among them workers seeking better wages and companies looking to keep trade secrets closely guarded.

How big would the change be? Between 27.8% and 46.5% of all US private sector workers are subject to non-compete agreements, according to a 2019 analysis by the Economic Policy Institute. The FTC maintains that such agreements limit the earning potential of workers along multiple industries and vocations.

“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 M. Khan said in a statement. The agency estimates that banning non-competes would increase wages by $300 billion annually, affecting around 30 million workers.

Stonehouse explained that the parameters of certain non-competes can be vast, affecting C-suite executives and hourly wage earners alike. They’re often used to prevent the sharing of sensitive information—like the technology underlying self-driving cars—with competitors. In those cases, companies are “trying to protect some intellectual property or things aren’t necessarily patentable,” he said.

They can also maintain a geographical stronghold on employees. “Some non-competes are worldwide or nationwide—those are not enforceable, but they are threatening and menacing,” said Stonehouse.

For lower wage workers like security guards or fast-food workers, rescinding the rules could catalyze upward economic mobility, he explained. “A lot of those people are marginalized or overly controlled. That’s definitely not the spirit of what I think most Americans would support,” said Stonehouse.

If the proposal becomes law, businesses that use non-competes and fear an exodus of workers will have to take action, Stonehouse said. HR will have to “make sure that they are in line with market rates for compensation and benefits as some employees will be more mobile or feel like they may have more options to look around within their industry without fear of legal repercussions,” he explained in a follow up email.—SB

Do you work in HR or have information about your HR department we should know? Email [email protected]. For completely confidential conversations, ask Sam for his number on Signal.