For decades, the noncompete clause found in many contracts has kept people earning peanuts for wages as their competitors offer significant financial incentives to jump ship. Now, the Federal Trade Commission (FTC) is banning nearly all instances of this clause. By a 3-2 vote and a thorough review of 26k comments on the subject, they are making a significant change to how Americans conduct business.
According to NPR, FTC Chair Lina Khan referenced some of their comments during the proceedings. “We heard from employees who, because of noncompetes, were stuck in abusive workplaces. One person noted when an employer merged with an organization whose religious principles conflicted with their own, a noncompete kept the worker locked in place and unable to freely switch to a job that didn’t conflict with their religious practices.” She argued that the comments, “pointed to the basic reality of how robbing people of their economic liberty also robs them of all sorts of other freedoms.”
Roughly 30 million people, or 20% of the workforce, are bound by some variation of a noncompete agreement. According to FTC estimates, if these are removed, we could see around $300 billion in new wages being created by creating an environment that rewards those at the top of their industry. Part of this could come from the estimated 8,500 new startups that could begin, according to a statement from Khan.
The major exception from the FTC would apply to existing noncompetes between companies and senior executives, making up just 0.75 percent of workers in the US.
So far, business groups led by the US Chamber of Commerce have filed an appeal to the vote in Texas federal court. They ascertain that the FTC lacks the rights or the standing to issue such a ruling. For over a year they have fought against this kicking and screaming, and so far many Americans are refusing to get on board to support noncompete agreements.
