THE LATEST: The Federal Trade Commission proposed a new rule that would ban employers from imposing noncompetes on their workers, a widespread and often exploitative practice that suppresses wages, prevents workers from finding better jobs, hampers innovation, and blocks entrepreneurs from starting new businesses. The FTC is seeking public comment on the proposed rule, which is based on a preliminary finding that noncompetes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act.
On April 19, 2023, Democracy Forward filed three comments in support of the proposed rule on behalf of REAL Women in Trucking, Restaurant Opportunities Center United and a coalition of legal scholars.
One in five US workers is bound by a noncompete clause, which restricts them from freely switching jobs, lowering wages and undermining fair competition. Even if they are not enforced, the threat that employers could sue over a noncompete can deter some workers from leaving jobs, especially workers that cannot afford legal fees. Most workers cannot negotiate their way out of a non-compete clause.
Non-competes are buried in the fine print of employment contracts. A full third of noncompete clauses are presented after a worker has accepted a job. Noncompetes prevent workers from becoming entrepreneurs and opening their own business. One study linked increased non-compete enforcement with a 12% decline in new firm entry.
The FTC estimates that noncompetes suppress workers’ income by 4%, denying Americans a collective $250 billion to $296 billion. Non-competes also contribute to gender and racial-based wage gaps. To address these harms, FTC’s proposed rule would (1) prohibit employers from using noncompete clauses in their contracts with workers, and (2) require them to rescind existing noncompetes and actively inform workers that they are no longer in effect. If finalized, the FTC proposed rule would benefit millions of American workers, helping them to raise their income and provide them further economic opportunities.
The proposed rule also prohibits de facto noncompete clauses by including a functional test to determine whether a contractual term is a non-compete clause. Research shows that training repayment agreements (TRAs) often function as de facto non-compete clauses, restricting workers’ mobility and ability to earn a decent living.
TRAs in the trucking industry stifle worker mobility, depress wages, and hinder competition among trucking companies. TRA misuse also deters workers from speaking out about harms they experience on the job, like sexual harassment and assault, and can deter them from leaving unsafe working conditions.