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Non-compete clauses ‘exploitative’ – FTC

The body that enforces US competition law has unveiled a plan to ban ‘non-compete clauses’ that prevent employees who are leaving a firm from joining rivals.

The proposal from the Federal Trade Commission (FTC) faces fierce opposition from business groups in the US.

The FTC described such clauses as “a widespread and often exploitative practice”, adding that they suppressed wages, hampered innovation, and blocked entrepreneurs from starting new businesses.

It estimates that its plan to stop the practice could increase wages by nearly $300 billion per year, and benefit about 30 million Americans.

‘Unfair method of competition’

The FTC has launched a public consultation on its plan, which is based on a preliminary finding that non-compete clauses constitute an unfair method of competition, and therefore violate section 5 of the Federal Trade Commission Act.

The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing non-compete clauses, and actively inform workers that they were no longer in effect.

“The freedom to change jobs is core to economic liberty, and to a competitive, thriving economy,” said FTC chair Lina Khan.

“Non-competes 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,” she added.

FTC move ‘blatantly unlawful’

The commission said that US companies used non-compete clauses across all industries and job levels, “from hairstylists and warehouse workers, to doctors and business executives”.

It stated that employers often used “their outsized bargaining power” to coerce workers into signing such contracts.

The US Chamber of Commerce, however, described the FTC move as “blatantly unlawful”.

“Since the agency’s creation over 100 years ago, Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule,” said the organisation’s senior vice-president for competition Sean Heather.