The Federal Trade Commission has proposed a rule to ban employee noncompete clauses. This rule to ban applies to both existing and future non-compete clauses. The employee agreements keep workers from changing jobs or starting a business.
Those who are in favor of the ban believe that this pushes employee income and creates room for innovation and entrepreneurship.
In her tweet, Lina Khan, FTC Chair said that non-compete agreements “undermine core economic liberties.” She said that evidence shows noncompetes limit innovation and entrepreneurship. She added,
“Locking workers in place can enable incumbents to close off markets to new rivals, undermining dynamism and healthy competition.”
The FTC is seeking public opinion on the proposal to ban noncompete clauses. The public gets 60 days to submit their comment on the proposed rule.
The Federal Trade Commission said that banning the agreements would increase the income of U.S. employees by approximately $250 billion to $296 billion per year.
According to FTC, 1 in 5 workers, i.e., 30 million Americans, is bound by non-compete clauses. This creates a restriction for workers to change jobs or begin startups.
During a Cabinet meeting, President Joe Biden said about the FTC proposal,
“It is a huge step forward in banning non-compete agreements that are designed simply to lower people’s wages.”
Worker’s rights groups and antitrust advocates applauded FTC’s proposal.
On Thursday, Executive Director of the American Economic Liberties Project Sarah Miller said that FTC’s vote would work out well for millions of workers, future new business owners, everyday consumers, and the American economy overall.
Lina M Khan also said that with the new rule in place, employees wouldn’t be able to block the workers’ freedom to change jobs and keep them from higher wages and better working conditions. She added that the FTC’S proposal would promote innovation and healthy competition.
In June last year, Microsoft announced that it would remove existing noncompete clauses and not add them in future U.S. employment agreements.
The FTC’s proposal could also curb the power of bigger companies dominating the market. The rule would prove beneficial for employers and the American economy.