Why the FTC wants to kill off non-compete agreements


Hello Quartz members,

“Should I stay or should I go?” I wondered onceThe song was ostensibly about ending a violent relationship. B.It may have been about non-compete obligations. “When I go, there’s trouble,” agonized the song’s lead, his vocalist Mick Jones. Rina Khan would sympathize.

Under Khan, the U.S. Federal Trade Commission (FTC) propose a ban About non-compete agreements that prevent company employees from moving to another company or starting a business in the same field. This is a decision that could affect about 30 million Americans. FTC Chairman Khan claimed Non-competitive restrictions drive down wages and prevent better working conditions. She estimates that banning non-compete obligations could increase workers’ income by $300 billion annually.

The non-compete obligation puts pressure on the income of employees by preventing wage increases due to job changes.Recent report According to a study by the Federal Reserve Bank of Atlanta, wages for those who change jobs will rise by an average of 6.7% in 2022. This puts him two percentage points higher than those who kept their jobs.

Image from an article titled

graphic: Diego Lasarte

Employees can often take advantage of competing offers to negotiate a pay increase without actually changing jobs. However, if the employee is bound by a non-compete clause in the contract, the employer, fully aware that the employee cannot leave, may ignore competing offers.

moreover, the study Industries with a high proportion of non-compete agreements show a decline in the formation of new companies and start-ups. By reducing the likelihood that employees will leave for better circumstances, competitiveness is reduced and employees lose their incentive to innovate.

Biden administration sees potential ban on non-compete law as a victory for workers, It’s an investment in a dynamic, innovative economy and a lifeline to the millions of Americans stuck in stagnant or hostile work environments. If Khan succeeds, this could be one of the FTC’s most effective and far-reaching reforms.


non-competitor

Non-compete clauses are often assumed to apply only to high-level corporate executives or persons who may possess confidential information about the company. In practice, the average employee working under a non-compete obligation hourly middle class workerTherefore, corporate executives and engineers highest pricesuch clauses are found in all kinds of occupations.

This is the FTC’s recent Presentation Three blue-collar companies are being sued for requiring workers to sign an illegal non-compete agreement. One is a Michigan-based security firm, this is Employees are prohibited from working for competitors within a 100-mile radius for two years after leaving employment. The other two companies were glass container manufacturers. All three companies have settled with his FTC, stopped requiring employees to sign non-compete agreements, and promised to void such agreements with current employees.

In many cases, non-compete agreements against low-wage workers are nothing more than empty threats. Most companies are not interested in protracted and expensive legal battles against easily replaceable workers. But non-competition offers a surprisingly easy way to sabotage competition and intimidate workers. some websites You can even advertise a free non-compete agreement that takes minutes to draft.


see in numbers

one-fifth: Number of American workers bound by non-compete agreements

12%: Percentage of workers with an income of less than $20,000 who signed a non-compete clause in 2014

$100,000: A penalty imposed by a Michigan security company when a security guard leaves to participate in a competing business within a 100-mile radius. (The FTC settled his complaint against the company on Jan. 4.)

One third: Number of employees who have a non-compete obligation after being offered a job offer

one tenth: Number of employees trying to negotiate non-compete clause

8.6%: Median estimated increase in average earnings for all workers if non-compete obligations ceased to apply, according to 2021 study


one 💻 thing

If non-competition had worked, there might not have been Silicon Valley.

About half a century ago, the center of the emerging “minicomputer” industry was not in the sunshine of California, but in the dark, cold winters of Boston. A handful of companies here competed with Western PC makers. But as the years went by, Boston’s high-tech sector along Route 128 declined as Silicon Valley blossomed. what happened?

According to legal scholar Ronald Gilson, a non-compete obligation is at least partially responsible (pdf). California does not enforce non-compete agreements, Gilson arguess, has created a dynamic and open culture of employment in Silicon Valley.Corporations poach the best and the most InnGiving them oviparous talent and better resources. Employees quit to go on strike themselves. Intellectual property that flows from company to company.

these conditions is not necessarily reproducible, Gilson’s Notes, either in time or space.Today’s states couldn’t be sure to conjure up their own industries super center Just abolish the non-compete obligation. But the legal system that fueled Silicon Valley’s growth includes: Another strong objection to indiscriminate use of non-compete obligations.


Quartz story to liven up the conversation


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thank you for reading! Also, feel free to contact us with any comments, questions, or topics you would like to know more about.

lasting fun weekend,

—Diego Lasarte, staff writer. Sumanth Subramanian, Global News Editor.

Additional contribution by Julia Malleck



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