Elections Have Consequences

While I continue to think that the Biden administration has been disastrous on foreign policy, where their devotion to the existing failed foreign policy consensus, aka "The Blob," has created a series of disasters, the current White House has been very good on domestic policy, particularly on labor rights and competition.

Case in point, appointing Lina Khan, perhaps the leading voice of a new generation of anti-trust policy makers to the FTC.

This is further reinforced by the latest rule issued by the FTC, which bans noncompete agreements for the vast bulk of the American workforce.

This is, to Bowlderize a former a past Vice President, "A big f%$#ing deal."

The Federal Trade Commission on Tuesday banned noncompete agreements for most U.S. workers, a move that will affect an estimated 30 million employees bound by contracts that restrict workers from switching employers within their industry.

The agency voted 3-2 to issue the rule, with commissioners in the majority saying they saw a mountain of evidence that noncompete agreements suppress wages, stifle entrepreneurship and gum up labor markets. The new rule makes it illegal for employers to include the agreements in employment contracts and requires companies with active noncompete agreements to inform workers that they are void.

“The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market,” FTC Chair Lina M. Khan said in a statement after the vote.

The rule is set to take effect after 120 days, but business groups vowed to challenge it in court, arguing that the FTC greatly overstepped its authority and enacted a rule that will hurt companies.

U.S. Chamber of Commerce CEO Suzanne P. Clark in a statement blasted the agency’s new rule as “a blatant power grab that will undermine American businesses’ ability to remain competitive.”

Just so you know, U.S. Chamber of Commerce CEO Suzanne P. Clark is lying.  Noncompetes have been unlawful and unenforceable in California since the late 1800s, and are demonstrably the reason for the rise of the electronics industry there.

Had it not been for noncompetes being unlawful, the industry would have been hamstrung for decades by William Shockley's delusions.  (See the Traitorous eight)

………

The rule, recommended by President Biden as part of a 2021 executive order, is the latest step in a major effort by the FTC to expand the boundaries of antitrust enforcement. Scholars cite a body of research that shows noncompete agreements suppress worker pay and entrepreneurship and make it more expensive for employers to hire workers bound by the covenants.

The rule states that new noncompete agreements will be banned for all workers after it takes effect. Existing noncompete agreements will no longer be enforceable, except for senior executives, who the FTC says represent less than 1 percent of workers.

President Biden cheered the move Tuesday: “Workers ought to have the right to choose who they want to work for.”

Commissioners voting for the rule Tuesday cited figures showing that 30 million U.S. workers are subject to noncompete agreements. A Labor Department study published in June 2022 estimated that 18 percent of Americans are bound by noncompete agreements, while other research suggests it could be closer to 50 percent.

It should be noted here that non-disclosure agreements are still permitted, so an employee could still be made to sign an agreement preventing them from using proprietary information, client lists, etc., but these are far less restrictive.

The goal of most non-competes, see the example of Jimmy John's requiring noncompete agreements from its sandwich makers is to chain the worker to the employer, not to protect trade secrets.

This is unambiguously good news, and benefits the workers and the nation.

Full FTC news release after the break:

FTC Announces Rule Banning Noncompetes

FTC’s final rule will generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation  

April 23, 2024

Today, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade. In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.

Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation. An estimated 30 million workers—nearly one in five Americans—are subject to a noncompete.

Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives - who represent less than 0.75% of workers - can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

In January 2023, the FTC issued a proposed rule which was subject to a 90-day public comment period. The FTC received more than 26,000 comments on the proposed rule, with over 25,000 comments in support of the FTC’s proposed ban on noncompetes. The comments informed the FTC’s final rulemaking process, with the FTC carefully reviewing each comment and making changes to the proposed rule in response to the public’s feedback.

In the final rule, the Commission has determined that it is an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to enter into noncompetes with workers and to enforce certain noncompetes.

The Commission found that noncompetes tend to negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers. The Commission also found that noncompetes tend to negatively affect competitive conditions in product and service markets, inhibiting new business formation and innovation. There is also evidence that noncompetes lead to increased market concentration and higher prices for consumers.

Alternatives to Noncompetes

The Commission found that employers have several alternatives to noncompetes that still enable firms to protect their investments without having to enforce a noncompete.

Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA.

The Commission also finds that instead of using noncompetes to lock in workers, employers that wish to retain employees can compete on the merits for the worker’s labor services by improving wages and working conditions.

Changes from the NPRM

Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.

Additionally, the Commission has eliminated a provision in the proposed rule that would have required employers to legally modify existing noncompetes by formally rescinding them. That change will help to streamline compliance.

Instead, under the final rule, employers will simply have to provide notice to workers bound to an existing noncompete that the noncompete agreement will not be enforced against them in the future. To aid employers’ compliance with this requirement, the Commission has included model language in the final rule that employers can use to communicate to workers.

The Commission vote to approve the issuance of the final rule was 3-2 with Commissioners Melissa Holyoak and Andrew N. Ferguson voting no. Commissioners Rebecca Kelly Slaughter, Alvaro Bedoya, Melissa Holyoak and Andrew N. Ferguson each issued separate statements. Chair Lina M. Khan will issue a separate statement.

The final rule will become effective 120 days after publication in the Federal Register.

Once the rule is effective, market participants can report information about a suspected violation of the rule to the Bureau of Competition by emailing noncompete@ftc.gov.

The Federal Trade Commission develops policy initiatives on issues that affect competition, consumers, and the U.S. economy. The FTC will never demand money, make threats, tell you to transfer money, or promise you a prize. Follow the FTC on social media, read consumer alerts and the business blog, and sign up to get the latest FTC news and alerts.