The Biden Administration is making a move to put an end to non-compete contracts, which could benefit workers by hundreds of billions in pay raises in the years ahead.
In a far-reaching move that could raise wages and increase competition among businesses, the Federal Trade Commission on Thursday unveiled a rule that would block companies from limiting their employees’ ability to work for a rival.
The proposed rule would ban provisions of labor contracts known as noncompete 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 area. The agreements have applied to workers as varied as sandwich makers, hair stylists, doctors and software engineers.
Studies show that noncompetes, which appear to directly affect roughly 20 percent to 45 percent of private-sector U.S. workers, hold down pay because job switching is one of the more reliable ways of securing a raise. Many economists believe they help explain why pay for middle-income workers has stagnated in recent decades.
Other studies show that noncompetes protect established companies from start-ups, reducing competition within industries. The arrangements may also harm productivity by making it hard for companies to hire workers who best fit their needs.
The F.T.C. proposal is the latest in a series of aggressive and sometimes unorthodox moves to rein in the power of large companies under the agency’s chair, Lina Khan.
“Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” Ms. Khan said in a statement announcing the proposal. “By ending this practice, the F.T.C.’s proposed rule would promote greater dynamism, innovation and healthy competition.”
The public will be allowed to submit comments on the proposal for 60 days, at which point the agency will move to make it final. An F.T.C. document said the rule would take effect 180 days after the final version is published, but experts said that it could face legal challenges.
Expect this to be tied up in courts well into 2024, when Republicans hope there will be a new FTC chair and a new President. Expect significant resistance to this from business groups and especially Silicon Valley as well.
As much as this needs to happen, I predict that the new rules will never take effect.
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