In a far-reaching move that could raise wages and increase competition among businesses, the Federal Trade Commission unveiled a rule Thursday that would bar companies from limiting their employees’ ability to work for a rival.
The proposed rule would ban provisions in labor contracts known as non-compete agreements, which prevent workers from leaving for a competitor or starting a competing business for months or years after their employment, often within a certain geographic location. within the area. The agreements have implemented as diverse as workers sandwich makerhair stylists, doctors and software engineer.
Studies Display non-competitor that directly affects materially accept it To 45 percent The vast majority of American private-sector employees have withheld pay because changing jobs is one of the more reliable ways to gain a pay raise. Many economists believe they help explain why wages for middle-income workers have stagnated in recent decades.
others studies Display Those that protect non-competitive established companies from start-ups reduce competition within industries. can also be arranged loss of productivity By making it difficult for companies to hire employees who best suit their needs.
The FTC proposal is the latest in a series of aggressive and sometimes unorthodox moves to rein in the power of big companies under the agency’s chair, Leena Khan.
“Non-compete prevents workers from freely changing jobs, denies them higher wages and better working conditions, and deprives businesses of a talent pool,” Ms Khan said in a statement announcing the proposal. , which they need.” “By ending this practice, the FTC’s proposed rule will foster greater mobility, innovation, and healthy competition.”
The public will be allowed to submit comments on the proposal for 60 days, at which point the agency will proceed to finalize it. An FTC document said the rule would take effect 180 days after the final version is published, but experts said it could face legal challenges.
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Economists are puzzled by the recent strength in the labor market, as the Federal Reserve tries to ward off recession and inflation.
The agency estimates that the rule could increase wages by nearly $300 billion per year across the economy. Evan Starr, an economist at the University of Maryland who has studied noncompetitors, said there was an appreciable wage increase after their elimination.
Dr Starr said non-competitors showed lower wages for both workers directly covered by them and other workers, partly by making the recruitment process more expensive for employers, who must spend time figuring out Whom they can appoint and whom they cannot.
He pointed to research showing that wages are higher in states that ban non-competes. a study found that wages for newly hired tech workers in Hawaii increased by about 4 percent after the state banned non-competes for those workers. In Oregon, where new noncompetes became unenforceable for low-wage workers in 2008, the changes appeared for a pay raise 2 to 3 percent of hourly workers.
about half the states Significantly hinders the use of non-competitors, and a small number have deemed them largely unenforceable, including California.
But even in such states companies often involve non-competitors in employment contracts, and many employees report in these states turning down job offers partly as a result of the provisions, suggesting that these state regulations may have limited effect. Many workers in those states are not necessarily aware that the provisions are unenforceable, experts say,
“Research shows that the use of noncompetes by employers to restrict worker mobility significantly suppresses workers’ wages—even for those who would have earned noncompetes.” are not subject to, or are subject to, non-competitive practices that are unenforceable under state law,” Elizabeth Wilkins, director of the FTC’s Office of Policy Planning, said in a statement.
The Commission’s proposal appears to address this issue by requiring employers to withdraw existing non-compete clauses and inform workers that they no longer apply. The proposal would also make it illegal for an employer to enter into a non-compete with an employee or attempt to do so, or to suggest that the employee is bound by the non-compete when he is not.
The offer includes not only employees but also independent contractors, interns, volunteers and other employees.
Defenders of non-competitors argue that employees are more likely to turn down a job if they want to retain their ability to join another company, or that they can bargain for higher wages in exchange for accepting the restriction. are independent. Proponents also argue that noncompetes make employers more likely to invest in training and share sensitive information with workers, which they may withhold if they fear an employee may leave early.
at least one study found it Greater promotion of non-competitors increases job creation by start-ups, although some of its findings contradict other research.
Dr. Starr stated that the non-compete look encouraging businesses to invest more in training, but there was little evidence that most workers entered them voluntarily or that they were able to bargain for them. One study found that only 10 percent of workers sought to bargain for concessions in exchange for signing a non-compete. About one-third became aware of non-competition only after accepting a job offer.
In a video call with reporters on Wednesday, Ms Khan said she believes the FTC has clear authority to issue the rule, noting that federal law allows the agency to prohibit “unfair methods of competition”. gives rights.
But Kristen Limerji, partner at Gibson, Dunn & Crutcher, who previously served as a senior official in the Justice Department’s Antitrust Division, said she believes such a rule could be vulnerable to legal challenge. Opponents would probably argue that the relevant federal statute is too vague to guide the agency in enacting a rule prohibiting non-competitors, she said, and that the evidence on the agency’s effectiveness is still too broad to support a rule. Very limited to do.
At the helm of the FTC since last year, Ms. Khan has tried to use the agency’s authority to limit the power and influence of corporate giants. In doing so, he and his allies hope to reverse a turn in recent decades toward more conservative antitrust law — a shift they attribute to runaway concentration, limited options for consumers and the squeezing of small businesses.
Ms Khan has brought lawsuits in recent months to block Meta, Facebook’s parent, the virtual reality start-up, and Microsoft from buying video game publisher Activision Blizzard. Both cases use less common legal arguments that may face heavy scrutiny from the courts. But Ms Khan has indicated she is prepared to lose the case if the agency takes too many risks.
Ms. Khan and her counterpart in the Justice Department’s Antitrust Division, Jonathan Cantor, have also said they want to increase the focus of the nation’s antitrust agencies on empowering workers. Last year, the Justice Department successfully blocked Penguin Random House from buying Simon & Schuster, using the argument that the deal would reduce compensation for authors.
One question on the discussion of non-competitors is how banning them during periods of high inflation might affect prices, given that limiting non-competitors tends to raise wages.
But the experience of the last two years, when attrition and attrition rates have been abnormally high, suggests that non-competition may not currently be as great a barrier to labor mobility as it has traditionally been. Is. Partly as a result, banning them may not have a short-term effect on wages.
Instead, some economists say, the more pronounced effects of the ban could come in the medium and long term, once the job market softens and workers don’t have as many benefits. At that point, the non-competitive could begin to change jobs and again put a higher burden on wages.
“Doing something like this is one way to help maintain the growth in the labor force we’ve seen over the past few years,” said Heidi Shierholz, president of the liberal Economic Policy Institute, who was chief economist at the Labor Department during the Obama administration.
David McCabe Contributed reporting.
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