Employers would be prohibited from requiring workers to sign noncompete agreements under a proposed new rule announced Thursday by the Federal Trade Commission. The rule also would require employers to rescind any existing noncompete agreements.
Approximately 20% of American workers, or 30 million people, are bound by such clauses, according to the FTC. Rachel Monger of LeadingAge Kansas previously told McKnight’s that staffing agencies have “exploited the nurse shortage for higher profits and discouraged market improvements with forced contract buyouts and noncompete clauses for nurses.”
The FTC called the practice of noncompetes “often exploitative,” asserting that it holds workers back from earning extra money, changing jobs or starting businesses of their own. The agency estimates that the proposed rule would increase American workers’ collective earnings $250 billion to $296 billion per year.
President Biden highlighted the negative effects of noncompete clauses in a July 2021 executive order, holding that the agreements discourage competition. The agreements already are illegal in California, North Dakota and Oklahoma, Bloomberg reported, adding that Illinois, Washington and other states have passed laws limiting their use, particularly among low-wage workers.
The FTC said it is proposing the rule to “reinvigorate” Section 5 of the FTC Act, which bans unfair methods of competition.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chair Lina M. Khan stated in the announcement. “Noncompetes 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. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation and healthy competition.”
The proposed rule on noncompete agreements has not been published in the Federal Register yet, but the FTC will accept public comments for 60 days after publication. The agency said it may make changes to the rule before it is finalized, based on the comments it receives and on its further analysis of the issue.
