The Federal Trade Commission (FTC) may implement President Joe Biden’s executive order against non-compete agreements later this month—pending legal pushback—and the long-term effects could be significant.
Key Details
- Non-compete clauses are contractual agreements that keep workers from taking a job with the employer’s competitor.
- The new rule would nullify all current and future employment contracts regarding non-compete rules.
- The FTC’s public comment period on its proposed rule to will end on April 19, accepting comments for and against the rule change.
- The rule faces court challenges from the U.S. Chamber of Commerce and could take years to go into effect after the FTC makes its ruling—if it ever does.
Why It’s Important
As we previously reported, the FTC has argued that non-compete clauses hurt workers. Thirty million Americans are currently held under non-competes, and the FTC argues that the ban could increase worker earnings by $300 billion annually. Many non-compete agreements are signed by low-level workers—including hair stylists, security guards, and journalists.
Businesses argue that non-compete agreements are necessary and do not have severe negative effects on the economy, particularly in states like California, where limitations on seeking competitive wages have not meaningfully suppressed innovation.
Supporters of non-compete agreements argue that they protect trade secrets and proprietary information. Tech companies, for example, do not want workers leaving Samsung for Apple and bringing their knowledge to other companies. Lawmakers have also noted that the move is an aggressive encroachment by the FTC and White House that could be overturned as an overreach of power.
Texas attorney Andy Trusevich tells Leaders Media that he supports a total ban on non-compete agreements and that patent infringement is already illegal outside of non-compete laws. Passing trade secrets to another company can result in patent infringements, criminal actions, and lawsuits for the companies and individuals involved.
An Alternative Perspective
Trusevich notes that there is bipartisan support for the FTC’s decision, but neither party has had the political will to tackle the issue. Presidents Barrack Obama, Donald Trump, and Joe Biden have had periods where they could have tackled the legislation with minimal partisan interference and did not pursue it. Neither the party of the worker nor the party of free trade could pull together a successful congressional proposal, leading to President Biden’s executive order.
“Business lobbyists are so strong that even when Republicans or Democrats held all three branches of government couldn’t touch non-competes. There’s a bill that was introduced in 2019 called The Workplace Mobility Act, it has been reintroduced multiple times and didn’t go anywhere. Politicians like Marco Rubio (R-FL), Chris Murphy (D-CT), and Elizabeth Warren (D-MA) have tried,” he says.
Trusevich is a capitalist, and he believes that the free market is a suitable method of facilitating good business practices. He says non-competes deflate wages and lower competition, harming low-level employees worse than high-level executives or engineers with tech secrets.
“Business lawyers will disagree with me, but it is a form of wage suppression. For it to apply to hairdressers, security guards, and lower-level employees living paycheck to paycheck is what makes it disagreeable. CEOs may be under a one- or two-year noncompete, but they have golden parachutes and stock options—they usually come out of the separation better. A store manager or a regional manager may only get two or three months’ compensation,” he says.
The road to passing the FTC’s proposal is long and may not come to pass at this time without congressional approval, but this is the closest it has ever come to being passed into law. Trusevich argues that the FTC’s ruling will open up the economy, raise wages, and promote healthy competition with greater benefits to workers.
Notable Quote
“President Calvin Coolidge once said, ‘America is in the business of business.’ We need to let there be a free economy and employees should be allowed to compete and seek competitors with more money—it will raise wages,” says Trusevich.
