The FTC bans noncompetes in a power move that could change labor lawmaking
Tearin’ up contracts… The FTC banned noncompete agreements last week. (FYI: a noncompete is a contract that keeps employees from joining rival companies.) The next day, the Chamber of Commerce and biz groups repping American Express, JPMorgan, Walmart, and other corporations sued to block the rule. At stake: the FTC’s rule could cancel 30M noncompetes four months from now, though bankers and some senior execs would be exempt. The FTC says the contracts stifle wage growth by preventing job-hopping — and banning them could lift workers’ earnings by $400B+ over the next decade.
Pinky swear: Businesses argue noncompetes protect their intellectual property, trade secrets, hot-sauce recipes… basically anything confidential that gives them an edge.
50-nifty: A handful of states including California already don’t enforce the contracts. A ban in New York (Wall Street’s known for its noncompetes) passed but was vetoed.
Beyond Wall Street… Nearly one in five American workers is under a noncompete. Higher-paying careers including salespeople, engineers, and doctors often require the agreement. But the list goes on to restaurant staff, power washers, cosmetologists, and other workers who make lower wages and don’t know biz-specific trade secrets.
Side door: The ban may also apply, on a case-by-case basis, to “stay or pay” clauses that require employees to pay a lump sum if they quit before a specified time. Experts say a third of US workers are now under stay-or-pay clauses.
The Khanconomy has big ambitions… For FTC Chair Lina Khan, this ban is a power move that could bust down the door for more pro-labor, economy-wide laws. Khan’s FTC has gone after big biz in courts, pursuing antitrust cases against the likes of Amazon and Microsoft. But its track record for wins has been spotty, and Khan’s said courts are slow and timid. Ergo this noncompete ban, the first time the agency’s made a regulation to tackle corporate competition in over a half-century.