Why the FTC Is Removing Non-Compete Agreements

Hi Quartz Members,

“Should I stay or should I go?” Conflict ever thoughtOstensibly, the song is about ending an acrimonious relationship. SecondBut it could easily be a non-compete contract. “If I go, there’s going to be trouble,” Mick Jones, the song’s lead singer, said bitterly. Lina Khan would feel the same way.

Under Khan’s leadership, the US Federal Trade Commission (FTC) is propose an injunction A non-compete agreement that prevents employees of one company from jumping to another company or doing business in the same field. The decision could affect about 30 million Americans. FTC Chairman Khan, controversial Noncompete depresses wages and prevents better working conditions. She estimates that banning non-compete could increase workers’ earnings by $300 billion a year.

Non-compete agreements depress employee earnings by excluding wage increases from changing jobs.recent Report Research from the Federal Reserve Bank of Atlanta found that wages for job-hopping workers will rise by an average of 6.7% in 2022, 2 percentage points higher than those for those who stay in their jobs.

Image of article titled Keys to Handcuffs image for the article

graphics: Diego Lasarte

Even without actually switching jobs, employees can often take advantage of competing offers to negotiate salary increases. However, if an employee is bound by a non-compete clause in their contract, their employer will likely ignore any offer to compete, knowing full well that the employee will not be able to leave.

also, Learn It has been shown that the creation of new firms and start-ups has declined in industries with high rates of non-compete agreements. By reducing the likelihood of employee turnover, competitiveness is stifled and employees are less motivated to innovate.

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


Non-compete clauses are often considered to apply only to senior officers of the company or those who may hold confidential information about the company.In practice, ordinary employees working under a non-compete agreement are middle-class workers paid by the hour. Therefore, although company executives and technicians have signed a non-compete agreement in the company Highest ratesuch terms can be found in a variety of occupations.

A recent FTC report illustrates this announcement It will sue three blue-collar companies for requiring workers to sign illegal non-compete agreements.One of them, a security company in Michigan, banned its Employees are prohibited from working for a competing business within a 100-mile radius for two years after leaving the company. The other two are glass container manufacturers. All three companies settled with the FTC, pledging to no longer require employees to sign noncompete agreements and to cancel any such agreements with current employees.

Non-compete agreements for low-wage workers are often hollow threats; most companies have no interest in protracted and potentially costly legal battles against easily replaceable workers. But noncompete offers a surprisingly simple way to thwart competition and intimidate workers. some sites Even advertise for free non-compete contracts that can be drafted in minutes.

by numbers

one fifth: Number of U.S. workers bound by non-compete contracts

12%: Percentage of workers earning less than $20,000 who have signed a non-compete agreement, as of 2014

$100,000: If any guard at a Michigan security company leaves to join a competing business within a 100-mile radius, the security company will be fined. (The FTC settled the charges against the company on Jan. 4.)

one third: Number of employees who received a non-compete after accepting a job offer

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

8.6%: According to a 2021 study, how much the average earnings of all workers are expected to increase if non-compete clauses are not enforceable

one thing

If non-competitors had their way, we might never have Silicon Valley.

Nearly half a century ago, the heart of the fledgling “minicomputer” industry lay not in the California sun but in the dark, cold winters of Boston. A handful of companies here compete with PC makers out west. As the years went by, however, Boston’s tech industry along Route 128 languished as Silicon Valley flourished. what happened?

According to legal scholar Ronald Gilson, non-compete is at least partly to blame (PDF).California doesn’t enforce noncompete agreements, argues GilsonSecond, which has created a vibrant, open employment culture in Silicon Valley.The company poached the best, mostnLike talent, give them better resources. Employees resigned to strike themselves. Intellectual property flows from one company to another.

these conditions no necessarily reproducible, gilson cautiousSecondwhether in time or space; countries today cannot determine their industrial super center Just remove the non-compete.But in the legal system that encouraged the development of Silicon Valley, it was found that Another strong argument against the abuse of non-compete contracts.

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thanks for reading! And don’t hesitate to ask a comment, question or topic that you would like to know more about.

have an undeniable fun weekend,

— Diego Lasarte, Staff Writer; Samanth Subramanian, Global News Editor.

Additional contribution by Julia Malleck

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