Remember the last time you started a new job?
Between the offer letter, the onboarding documents and the employee handbook.
Did you really comb through the fine print?
Could something have been missed amid the excitement about the new gig?
Well, for millions of American workers,
one hastily signed document can make or break future career moves.
It's called a non-compete clause.
A non-compete is a binding agreement that follows a worker
after they leave their job by preventing that person from seeking
new employment or starting a business within the same field.
And according to the Federal Trade Commission, it's costing American workers
big time, about $300 billion each year.
The FTC could have some serious ripples across corporate America.
The agency proposing a new ban of so called non-compete clauses.
That rule would increase wages
across the board for American workers by nearly $300 billion per year
and expand career opportunities for about 30 million Americans.
A lot of questions about what you know, what could happen
and also the kind of legal challenges that may come.
The Chamber of Commerce told us today that the FTC's rulemaking is unlawful.
And they told me today it's already contemplating legal action against it.
Here's why the FTC is going to war against
non-compete clauses.
The FTC's current
proposal is the most aggressive step
that any actor within the federal landscape
has taken towards addressing the problem of non-compete abuse.
A non-compete is a contractual clause between a worker and an employer
that limits the worker’s ability to accept or seek other employment
or to start their own business for a certain period of time or
within a graphical location after the employment ends.
On the job training can be a costly and timely part of hiring a new employee.
Non-competes are viewed by some as a tool to protect the investment
a company makes towards upskilling their workers.
Employee agrees not to compete against the company
in any of its different lines of business for two years.
Within the state of Florida.
But more often than that, you see increasingly non-competes
that are national in scope and even worldwide in scope.
So we're talking about two years will not compete against anything we do
anywhere in the world.
Critics say that non-compete contracts stifle career mobility by squashing
a person's power to seek out comparable employment that offers higher wages.
Even if a worker is in a state where non-compete are prohibited
or where they're narrowly construed, the workers may not know that, right?
So the employers often exploit the gap in knowledge.
Companies profit from it because they're able to one limit employee mobility, okay.
So when you limit employee mobility,
you are able to eliminate competition for labor.
And when you eliminate competition for labor, you're able to suppress wages.
Sometimes employers are actually
imposing these on workers even after they've agreed to a job.
They can be coercive.
They can be exploitative.
And that's where you also see wages depressed.
Historically, noncompete agreements were used to keep executive level
employees from working for competitors and bringing trade secrets with them.
Now, non-compete clauses have trickled down to rank
and file positions in nearly every industry in America.
It's estimated that 18% of U.S.
workers are bound by non-compete contracts.
Non-compete clauses today govern around one in five U.S.
workers.
These clauses may have started in the boardroom, but today what we see
is that they've proliferated across sectors and across income levels.
So we're talking about nurses.
We're talking about fast food workers, janitors, but also physicians and engineers.
This is Cat Ranciato.
The hair salon she worked at had her sign the non-compete
after she had already been hired.
In 2011, a sickness in her family led her to seek out
employment closer to home.
Shortly after starting with the new salon, she received an injunction
from her previous employer, citing a violation of her non-compete.
She ended up losing the case.
At the various other hair salons that I worked at
I had not come into contact with a non-compete agreement at all.
I was a single mother at the time and supporting a child on my own.
So the job was important to me.
I almost fully signed it and duress because I needed the job.
And if I didn't sign the Non-Competition agreement, I would no longer be employed.
And this is Matt Knolle
a financial planner who left his previous firm to start his own business.
Despite Matt's effort to abide by the terms of his contract
and open his business just beyond the 50 mile radius
of his non-compete, his former employer still took legal action against him.
I have three little ones and a wife.
And when this preliminary injunction
was put against me, you know,
get your heart racing because you're like, well, I don't know how to handle this.
I've never been put in this situation before.
Your mind starts to run wild and say, Well, am I ever going to get to be able
to continue to operate in this industry that I have come to know and love?
You hire counsel and you kind of get pulled
into a world that you previously were completely unfamiliar with.
And ultimately the injunction was dropped.
Whether an employee is fired, laid off, or leaves a company on their own volition.
A non-compete contract can still be enforceable.
An employee leaves. They go to a competing company
or they go to a company that’s like even marginally competitive.
And the first thing they do is they send a cease
and desist letter to the employee
and to the new company.
The terms of the agreement were a ten mile radius,
and it was as the crow flies and it was for a one year term.
So I could not work in my field for one full year within that radius.
It can be so scary they could actually go bankrupt from litigation
that they won't proceed at all.
And they say, you know what, I'm just going to take my chances.
I'm going to stay where I am and continue keeping the job
because I can't afford to be sued and I need to pay my bills.
Thank you.
It is an important story to tell, and I hope nobody has to go through
what I went through because it was very, very emotional and very
challenging.
They have this notion that just because the company paid
X money during this period of time, Right.
That they should be able to own and control the person's labor
after that period of time, after that time is over, right.
In perpetuity, controlling what that person does and controlling their labor.
And that's like philosophically and doctrinally,
you know, that has historical echoes,
you know, that go back into indentured servitude
and slavery and all kinds of other nefarious stuff.
This is a proposed rule.
We've put out a proposal.
We're going to be collecting comments for 60 days.
Once people have finished commenting, we're going to look at that
full record and determine what's the best way to go forward.
The FTC's proposal to ban non-compete is unlawful
simply because the FTC has it been granted the authority
by Congress to issue these type of regulations
and in particular to issue regulations on non-compete.
Since the FTC published its proposal to ban non-compete rights
in January 2023, it has received thousands
of formal comment letters offering reactions to the ban.
The primary opposition to the proposal revolves
around the FTC's authority to enact such a sweeping rule.
There are obviously a lot of ways the FTC can go here,
but as we explained in our comment letter, we think that
there are some serious legal concerns with the proposal.
And despite the FTC, good intentions and sincere desire
to protect workers with unequal bargaining power, we just don't think
the FTC has the legal authority to issue a sweeping rule like this one.
The debate that's going on now at the FTC is both about the policy
which they have wrong, but ultimately is fundamentally about the authority
of three unelected individuals to fund the mentally change
the rules of employment for millions of Americans.
The Supreme Court has made quite clear in recent years that Congress needs
to specifically authorize agency actions that impact
a significant portion of the American economy,
which this surely would since the FTC itself predicts non-compete
agreements cover one in five American workers.
However, FTC chair Lina Khan remains resolute about the FTC's authority
to police unfair methods of competition as stated in section five of the FTC Act.
Congress gave the FTC the authority to check unfair methods of competition.
They told us that we could do that through a variety of ways,
through bringing lawsuits,
but also through bringing rules, through issuing market wide rules.
And so we're confident that the
the text and structure of the FTC Act gives us clear authority to do this.
Of course, non-compete agreements, when they're
improperly used, when they're abused,
when they become ubiquitous, of course,
they constitute an unfair method of competition.
So, of course, the FTC has authority
to regulate and outlaw the use of non-compete agreements.
It's already in the statute and it's been there for 100 years.
As questions of authority mount,
it's clear the FTC will have an upward battle on any final ruling.
If the FTC finalizes a regulation
on non-compete under their competition authority the U.S.
Chamber will sue, because they do not have the authority to issue regulations
in this manner.
The FTC's proposed
rule would not only ban future uses of non-compete,
it would also void all current non-compete contracts, a move
that would fundamentally change the landscape of America's workforce.
The FTC rule ban has potential to really
bring a lot of bargaining power back to the employees
because if there was a national ban on non-compete and it wasn't just
left to the states to decide by piecemeal, you know, case law,
then employees would have a lot
more options.