The competition over noncompete agreements is heating up
Image: HR Grapevine
Football coaches will be both happy and confused to know there’s a whole lot of competing over noncompeting currently taking place.
This week, a federal judge blocked a landmark regulation that would have banned employers from using noncompete agreements, preventing the law from taking effect nationwide on September 4 as planned.
Some quick background: Noncompete agreements are contract clauses preventing workers from taking positions with competing companies for a period of time after leaving a job, typically ranging from six months to two years.
- In April, the Federal Trade Commission voted 3-2 to ban new noncompete agreements across the nation and break the proverbial chains of any workers currently bound by one – an estimated 30 million Americans, or ~18% of the workforce.
- The FTC’s new regulation carries one exception: senior execs who earn over $151,164 annually and are in policy-making roles.
But according to a judge, the agency has overstepped its bounds. In her ruling this week, US District Judge Ada Brown concluded that while the FTC has authority to police unfair methods of competition, it doesn’t have the authority to issue substantive regulations that ban an entire category of conduct without Congress’ approval.
- The ruling represents a legal victory for the Chamber of Commerce and other business groups who sued to block the FTC law, which they argue will disincentivize employers from providing training and skill development, and also put trade secrets into jeopardy.
- On the flip side, the FTC claims noncompete agreements violate US antitrust law by unfairly limiting competition and worker mobility. According to previous agency estimates, its noncompete ban would lead to ~8,500 additional new startups/year, and enhance Americans’ wages by a collective ~$300 billion/year.
Looking ahead… An FTC spokesperson said the agency is disappointed with the ruling and “seriously considering a potential appeal” – an action that would put the case one level below the Supreme Court.
📊 Flash poll: In your opinion, should noncompete agreements be legal or illegal for US employees below the senior executive level?
See a 360° view of what media pundits are saying →
Sprinkles from the Left
- Some commentators argue that while noncompetes harm American workers and overall innovation, the FTC’s ban on such agreements is too broad and may not actually fall under its authority; instead, Congress should enact a similar – but less stringent – law in the future.
- Others contend that there are both benefits and drawbacks to noncompete agreements, and a prudent compromise would be to pair freedom to negotiate for high-wage professionals with stronger protections for the more vulnerable – not a near-blanket ban, as the FTC proposed.
- “The FTC’s noncompete clause rule goes too far” –WaPo Editorial Board
- “Are Noncompete Deals Good or Bad? Probably Both.” –Bloomberg Editorial Board
- “Let the competition begin: The FTC did its duty banning noncompetes” –NY Daily News Editorial Board
Sprinkles from the Right
- Some commentators argue that the FTC’s noncompete ban is a clear example of the agency’s tendency under progressive Chair Lina Khan to skirt legal boundaries and push sweeping changes that the agency doesn’t have the authority to enact.
- Others contend that noncompete agreements may make sense for executives and highly skilled workers, but their proliferation to a wide range of lower professions suppress worker mobility, innovation, and wages – and should be banned.
- “Lina Khan’s Noncompete Ban Goes Down in Court” –WSJ Editorial Board
- “FTC banning noncompete agreements boosts employees, economic growth” –Peter Morici, Washington Times
- “The FTC’s Noncompete Ban Will Hurt Employees” –G. Brint Ryan, WSJ
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