The Biden administration on Tuesday approved a rule making it easier for employees to go away their jobs for a greater one, in an effort to spice up competition and increase employees’ wages.
The Federal Trade Commission banned so-called non-compete agreements, through which employees agree to not work for certain other firms after they leave their current employer. According to the FTC, the agreements, often presented as a condition of employment, now cover an estimated one in five employees; Critics say they’ve been proven to lower employees’ wages and make it harder to begin your personal business.
“In parts of the economy that emphasize human relationships — sales companies, consulting companies, customer service companies — this would be a huge shift,” said John Siegal, a partner at BakerHostetler who represents financial, real estate and media clients.
“It will be a very, very big change when this rule comes into effect.”
This is a giant problem because business interests have promised to take it to court. The US Chamber of Commerce vowed to sue about what it called a “blatant power grab” by the agency. “This decision sets a dangerous precedent for government micromanagement of businesses and has the potential to harm employers, employees and our economy,” Chamber CEO Suzanne Clark said in an announcement. “[S]Such abuse will not go unchecked.”
Tax service provider Ryan’s first lawsuit against the rule was dropped Tuesday evening.
In recent years, many states have enacted their very own laws restricting or banning non-compete agreements after reports of firms applying them to low-wage employees within the retail and manual service industries Fast food employees, temporary warehouse employeesAnd Security forces. The FTC’s rule imposes a nationwide ban and applies to all employees in nonprofit firms, even the highly paid executives most frequently related to non-compete agreements.
These agreements “keep wages low, stifle new ideas and rob the American economy of its dynamism,” said FTC Chairwoman Lina Khan. “We have heard from employees stuck in abusive workplaces because of non-compete agreements.” The ban is predicted to assist create 8,500 recent businesses per yr, increase employee wages by a median of $520 per yr, and increase patent filings to extend by 17,000 per yr. in line with the FTC.
The FTC’s rule requires firms with existing non-compete agreements to tell their employees that they are going to not implement those agreements. Executives who signed non-compete agreements will proceed to be certain by them, the FTC said, but firms will probably be prohibited from imposing non-compete agreements on senior executives.
The recent regulation doesn’t apply to employees of non-profit organizations.
Commissioners voted 3-2 to adopt the rule, following party lines. The law is scheduled to take effect in 120 days unless a court delays implementation.
According to the FTC, firms that need to protect themselves from competition can still depend on tools resembling nondisclosure agreements or filing trade secret lawsuits. But Siegal said these tools are less favorable to employers than non-compete agreements because they raise the bar for litigating and make it harder for employers to file lawsuits against highly paid executives who give their business to competitors.
“The games people play will either continue at the same pace or increase, and the means to enforce them will weaken,” he said Assets.
“There are all kinds of injustice in the market. The FTC is focused on unfairness against employees,” he said. As for “the injustice to people who are victims of aggressive, if not illegal, business practices…they have ignored that kind of injustice.”
