Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (2023)

The champions of the “free market” are frantically lobbying to block the Federal Trade Commission’s imminent ban on noncompete agreements, which prevent workers from seeking better-paying jobs or starting new businesses.

The U.S. Chamber of Commerce, the largest business lobby in the country, touts itself as the voice for “competition in the marketplace,” a principleit says is vital for innovation and dynamism in the economy. Despite its rhetoric, the Chamber is mobilizing against a major reform proposed by the FTC to liberate workers from so-called noncompete clauses. Noncompetes have become rampant at large companies, which force many workers to sign them as a condition of employment. Today, about1 in5 American workers — some 30 million people — are bound by a noncompete.

“This is just another example where support for the ‘free market’ is effectively Calvinball for pro-business groups,” economist Dean Baker of the Center for Economic and Policy Research told The Intercept. “They are perfectly happy to effectively redefine the free market when it suits their interests.”

Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (1)

Indeed, this phenomenon — of corporations loudly agitating for the “principles” of the “free market” but opposing functioning markets in practice — was recently pointed out by an anonymous commenter on the FTC’s website. The poster, writing in support of the proposed FTC rule, said, “I find it ironic many who support non-compete clauses also claim to support the free market/capitalism, which supposedly thrives off of competition.”

Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (2)

Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (3)

(Video) How Biden’s proposed ban on non-compete agreements would impact workers and companies

This should be no surprise, however. In Adam Smith’s “The Wealth of Nations,” published in 1776, hepoints out that “to widen the market and to narrow the competition, is always the interest” of the biggest “merchants and master manufacturers.” Therefore, the public should listen to the arguments of such interests “with the most suspicious attention” since they “have generally an interest to deceive and even to oppress the publick.”

Pro-business groups contend that the FTC does not have the legal authority to issue such a ban. “Attempting to ban noncompete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition,” the U.S. Chamber of Commerce Senior Vice President for International Regulatory Affairs and Antitrust Sean Heather said in the statement. (The latter argument ignores the variety of other laws that exist protecting businesses’ proprietary information.)

On Tuesday, the Chamber and a coalition representing hundreds of employers sent a letter to the FTC, requesting an extension on the comment period to provide industry groups with more time to mount opposition. The FTC announced the rule on January 5. After a 90-day public comment period, the FTC may decide to amend the rule or withdraw it. If the agency moves forward with the noncompete ban, the rule takes effect 180 days after publication of the final regulation.

Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (4)

The Chamber-led industry coalition includes the American Hospital Association, the American Bankers Association, National Restaurant Association, and dozens of other employer-led groups that represent the very largest corporations in America.

The Chamber has threatened a lawsuit to block the FTC rule. “There is no need to panic,” Jackson Lewis, one of the most aggressively anti-union law firms in the country which advises businesses, wrote in a special report on January 10: “It is still early in the process […] if the final rule is issued, there will be significant and substantial legal challenges to it.”

The proliferation of so-called noncompete clauses have flooded into the economy— a phenomenon that has become common even for fast-food workers, clerks, and low-level hospital employees. In 2016, a report from the Treasury Department found that 15 percent of workers without a four-year college degree are subject to noncompete agreements, despite few of such workers possessing trade secrets. The clause generally restricts workers from taking similar employment elsewhere or starting a new business in the future.

(Video) Federal Trade Commission proposes ban on noncompete clauses

Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (5)

“It is outrageous that these companies want the right to not have to compete with each other in an open market for employees.”

These restrictions have caused alarm among economists and worker advocates. The Economic Policy Institute has found that noncompete clauses have fueled rising inequality by reducing “labor market fluidity” — that is, the ability for workers to change jobs. One of the primary ways a nonunion worker can bargain for a better wage is to threaten to leave for a better paid position elsewhere, a dynamic that is eliminated by noncompete clauses.

Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (6)

“It is outrageous that these companies want the right to not have to compete with each other in an open market for employees,” J.W. Mason, an economist at the City University of New York, told The Intercept. “On a competitive market they don’t want to pay what people’s labor would actually be worth.”

The FTC’s proposal followed a July executive order by President Joe Biden instructing the agency “to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

FTC Chair Lina Khan’s appointment was heralded by progressives like Senator Elizabeth Warren, D-Mass., as “tremendous news” and a “huge opportunity to make big, structural change by reviving antitrust enforcement and fighting monopolies.” Selected to shake up an agency long considered by progressives to be too soft on business, Khan has challenged decades of antitrust law by arguing that there’s a monopoly case against Amazon.

Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements (7)

(Video) Biden says he wants to get rid of non-compete contracts

And the rule is popular, enjoying support from two-thirds of people currently employed, according to a January 6 poll by Ipsos. Legislators from both parties have introduced bills that also sharply restrict the use of such clauses.

“Speak up and file a comment if you have something to say,” Fisher Phillips instructs clients in a frequently asked questions page. “Coordinate with your Fisher Phillips attorney if you would like guidance on this process.” Fisher Philipps has in the past conducted trainings with the Chamber of Commerce instructing employers on noncompetes.

A recurring theme in the public comments is medical professionals expressing frustration with noncompetes leaving them unable to hire. “Noncompete clauses force doctors to move out of the state if they [are] wanting to switch jobs and cause them to not pursue jobs in the first place,” wrote Dr. Shiraz Rahim, a physician at the Rush University Medical Center in Chicago, whose responsibilities include hiring other doctors. “This has contributed to a shortage of doctors across our system and made it impossible to recruit new doctors to our area.”

“I previously worked in an underserved area of Ohio where patients had to wait over 6 months to see a medical specialist. My hospital job required a non compete of 20 miles,” writes Florida physician Katherine Lu. “These non completes force physicians to leave the community and their patients if they want to leave their job. I personally had to move with my family to another state to work again after leaving.”

In another public comment, Dr. Cordelia Ariel Nason, director of anesthesiology at Northridge Surgical Suites in Nashua, New Hampshire, described the dire consequences of noncompetes, which she says “tips the balance in favor of large companies” that own hospitals and other medical facilities.

“These large corporations then hire doctors, coerce them to sign non compete contracts which effectively limits working at the very facilities where they dedicate their lives to,” Nason writes. “And then if working conditions under the company are poor or the company terminates their own contract with the medical facility or the medical facility terminates the contract with the company, the doctor is then unable to work at that facility for themselves or another company that may have more favorable conditions.”

To the extent that arguments against noncompetes bother to go beyond the procedural questions about the FTC’s authority, they tend to focus on the idea that noncompetes promote innovation by preventing employees from leaving a job and taking trade secrets with them. Indeed, employers frequently argue that noncompete clauses are necessary to protect confidential information, such as marketing strategies or pricing plans. The fear of losing the competitive edge from inside information has fueled the proliferation of such employment contracts.

But advocates note that the FTC ban on noncompete clauses, like similar bans enacted in recent years in Maryland and California, do not circumvent existing laws banning the theft of trade secrets and other proprietary information. Employers may still require confidentiality agreements and other restrictive covenants in employment contracts, while allowing former employees to leave and work at competing firms.

(Video) How a Noncompete Agreement Ban Could Add $300 Billion to Worker Wages | WSJ

“Many states, most notably California, have long banned noncompetes; they seem to be doing fine,” said Baker, the economist. “The claims on innovation are pretty obvious nonsense, given California’s dominance of tech.”

Another argument advanced by advocates is that noncompetes incentivize employers to invest in training employees, since there isn’t risk of them leaving for a competitor. “There might be some impact on training, but the benefits in the form of higher wages and more frequent startups almost certainly offsets this,” Baker said.

Lobbying records show corporate interests are preparing to fight. The HR Policy Association, which represents major employers including McDonald’s Corporation and Johnson & Johnson, has closely tracked the reform effort around noncompete clauses.

The National Association of Manufacturers, which represents Toyota, Exxon Mobil, BNSF, and other large employers, reported lobbying the FTC and other federal agencies over noncompete issues.

Opposition even extends to the media. The National Newspaper Association, which represents community newspapers across America, signed onto the Chamber letter sent earlier this week. News outlets, like virtually every other industry, have increasingly adopted noncompete clauses in employment contracts, not only for top editors and executives, but also for low-level journalists and other employees.

Throughout the history of capitalism, the goal of employers — whatever their rhetoric — has always been to reduce competition in various ways in order to drive down wages. In the 1800s, as the British Empire prepared to eliminate slavery in its possessions, British officials laid plans to prevent their former slaves from having the option of buying their own land to farm — and therefore be in a position to demand better pay. This was, in a sense, the noncompete clause of the day.

More recently, in Silicon Valley, Adobe, Apple, Google, and Intel privately agreed not to poach workers from each other with offers of higher salaries. As the New York Times put it in 2015, they “conspired against their own employees.” The four companies eventually settled a lawsuit for $415 million. Other companies were also involved in the collusion, including eBay. (eBay was founded by Pierre Omidyar, who also founded First Look Media, whose nonprofit arm The Intercept was originally part of.)

At least one lobbying group let slip that there’s another way to retain employees. The American Optometric Association, which represents optometrists, sent an update for members around the FTC proposal. The memo quotes Sharon Markowitz, an attorney, who recommended that doctors consider talking to a lawyer and submitting a FTC comment in opposition to the rule.

(Video) Will Biden Ban Non-Compete Agreements?

If all else fails, Markowitz said, one way to get ahead of the possible elimination of noncompete clauses is to improve employee loyalty by “increasing wages.”

The post Big Business’ Plan to Block Biden’s Ban on Noncompete Agreements appeared first on The Intercept.

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In what states are non competes unenforceable? ›

In California, North Dakota, the District of Columbia, and Oklahoma, non-competes are either entirely or largely unenforceable as against public policy. Other states, including Maine, Maryland, New Hampshire, Rhode Island, and Washington, have banned non-compete agreements for low-wage workers.

How hard is it to enforce a non-compete agreement? ›

Surprisingly, it doesn't take much to make a non-compete agreement unenforceable. That is because legislators in every state have recognized important public policy reasons for restricting the power of these agreements.

Why does the law disfavor noncompetition agreements? ›

Most jurisdictions disfavor noncompete agreements because they restrict trade and employees often lack bargaining power when they sign such agreements.

How binding is a non-compete? ›

Like other contracts, a noncompete agreement is a binding document, and employees who sign them can't enter into direct competition with their former employer after leaving their job. Usually, this means that an employee can't work in certain industries or at particular companies for a set period of time.

How do you get around a non-compete? ›

How do I get around a non-compete agreement?
  1. Prove your employer is in breach of contract. ...
  2. Prove there is no legitimate interest to enforce the non-compete agreement. ...
  3. Prove the agreement is not for a reasonable amount of time. ...
  4. Prove that the confidential information you had access to isn't special.
Jan 27, 2015

How serious is non-compete clause? ›

From an Indian legal perspective, the Non-compete clause is prohibited under the Law of Contracts. Section 27 of the Indian Contract Act-1872 provides that - Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void.

What can void a non-compete? ›

You Can Void a Non-Compete by Proving How Severely Its Terms Would Affect You. The inability to make a living could be an “undue hardship” that renders a non-compete unenforceable. Think about your job skills and the specific terms of the non-compete agreement you signed.

What makes a non-compete unreasonable? ›

One of the most important factors courts will often look at when determining the validity of a non-compete agreement is whether it actually protects a legitimate business interest of the employer. If it doesn't, there really isn't any reason to stop the employee from competing against a former employer.

Can you ignore non-compete? ›

A non-compete prohibits an employee from engaging in a business that competes with his/her current employer's business. While an employer cannot require you to sign a non-compete, they may terminate, or choose not to hire you if you refuse to sign. Courts generally do not approve of non-compete agreements.

Are non-compete clauses unconstitutional? ›

In the case of individuals, in general terms it is unconstitutional to impede or prohibit such persons from temporarily or permanently engaging in any type of work, commerce or profession.

Are Noncompetes ethical? ›

Simply, a non-compete cannot be ethically justified if the employer lacks any legitimate business interest.

Why non-compete clauses are good? ›

Employers use these agreements for a variety of reasons: they can protect trade secrets, reduce labor turnover, impose costs on competing firms, and improve employer leverage in future negotiations with workers.

Does Target have a non-compete agreement? ›

Related to Target Non-Competition Agreements

Noncompetition Agreements Purchaser shall have executed and delivered to each Seller a Noncompetition Agreement substantially in the form attached hereto as Schedule 6.5(a).

How often do non competes hold up? ›

One to two years is typically reasonable, while three to five years is unlikely to be upheld by a court.

Are you bound by any non-compete agreement? ›

Yes, you are bound by a non-compete agreement. However, they only remain legally binding if the restrictions placed on you are reasonable and serve to protect the “legitimate business interests” of your former employer.

Does getting fired nullify a non-compete? ›

Does my non-compete clause still hold if I leave my job involuntarily? In most cases, the non-compete clause still holds even if you are fired or laid off. However, you may be able to request that your former employer waive the clause. In such circumstances, employers are sometimes more open to waiving the clause.

How long is too long noncompete? ›

A Non-Compete Agreement typically lasts six months to two years, but varies depending on your state's laws. A judge is likely to find anything longer than that to be unreasonable, and an indefinite agreement is out of the question.

Does Walgreens have a non-compete agreement? ›

For example, drugstore chains like Walgreens, CVS, and Rite Aid may have a non-compete agreement that prohibits you from working at a competing pharmacy, including independent pharmacies.

Are non competes constitutional? ›

The legality of non-compete agreements differs from state to state. In the majority of states, noncompete clauses are allowed so long as the scope of the restrictions are reasonable.

How worried should I be about a non-compete? ›

Hiring someone with a non-compete can be risky for the new firm as well if you're hiring from a competitor. The previous employer can sue their former employee and the new employer. Even if they lose, if can cost the employee and new firm a lot of money in legal fees, and may prevent the person from working for a time.

How common are non-compete clauses? ›

About half of all employers use non-competes, according to a 2019 survey from the Economic Policy Institute, while about a fifth of all American workers are subject to the agreements.

What is a reasonable distance in non-compete agreement? ›

Most non-compete contracts prohibit competitive activity by the ex-employee within a certain number of miles of the employer's business. The typical language prohibits competitive activity within a 15 to 25 mile radius of the employer's business.

Does a non-compete hold up if company is sold? ›

What the Courts do agree on is that a non-compete permitting assignment will allow the new owners to enforce the non-compete. This applies even if the original non-compete was presented on a “take-it-or-leave-it” basis, with no opportunity for the employee to negotiate terms.

Should I tell my new employer about my non-compete? ›

3. Be honest with prospective employers. If you do land an interview for a new job, it's important to discuss your non-compete agreement with your prospective employer. Keeping it a secret could force the employer to fire you later on to comply with the contract.

Is a non-compete a red flag? ›

Here are four red flags in employment contracts that you should watch out for: Overly broad non-compete clauses. In most states, non-compete clauses are enforceable against an employee so long as they are reasonable. California has largely banned non-compete clauses altogether.

Why are noncompete agreements potentially bad for employees? ›

In many cases, employers use their outsized bargaining power to coerce workers into signing these contracts. Noncompetes harm competition in U.S. labor markets by blocking workers from pursuing better opportunities and by preventing employers from hiring the best available talent.

Are non competes enforceable us? ›

The lessons that can be learnt from these two recent decisions are that non-compete clauses are potentially enforceable provided they are tailored to the individual employee's present role at the time the contracts were entered into, and are proportionate.

What happens if you break non-compete? ›

If the clause is enforceable and you're in breach, there are various sanctions that your ex-employer can seek. These include: An injunction: This would stop you from carrying out your new role and you may also face payment of the other party's legal costs.

What are the consequences of breaking a non-compete? ›

If you violate a valid non-compete covenant that is in place, your former employer could pursue legal action against you. This could involve an injunction, lawsuit, or monetary penalties. You could face civil penalties and additional consequences for violating your non-compete agreement as well.

How do I get out of a non-compete franchise agreement? ›

You may be able to buy your way out of the non-compete. Franchisees, for example, occasionally buy their way out of non-competes by paying the franchisor the present value of royalties that would be due if the franchisee continued operating through the duration of the non-compete.

Why do non competition clauses rarely hold up in court? ›

If the clause in question prevents competition, it's unlikely to hold up in court. Courts are reluctant to enforce such provisions, and will only do so in exceptional circumstances. If, on the other hand, the clause only prevents solicitation, its enforceability is more likely – but by no means certain.

What is the FTC rule on noncompetes? ›

The FTC's proposed rule generally would prohibit employers from using noncompete clauses, including independent contractors and anyone who works for an employer, whether paid or unpaid.

How is a covenant not to compete taxed? ›

For the seller, the income from the covenant payments will be taxed as ordinary income at the timeit is received. If the non-compete is lumped as part of good will and is not broken out as a separateitem, it will be taxed as a long-term capital gain.

Why non-competes are unethical? ›

Not surprisingly, many of the disadvantages of non-compete agreements are on the employee side. They can restrict employee mobility, and restrict an employee from working in a chosen field for a time. They can also restrict the open market and business climate.

What problems could arise from the use of non-compete agreements? ›

The Issue:

Non-competes restrict a person's ability to work for or to start rival firms, leaving workers with diminished bargaining power and fewer options for pursuing career opportunities.

Can you negotiate a non-compete agreement? ›

Employees often think non-compete agreements are non-negotiable, but companies will negotiate with you if they really want you on their team.

Which states are blue pencil states? ›

A Quick State-By-State Guide on the Blue Pencil Rule

In Arizona, Indiana, North Carolina, South Carolina, and Oklahoma, courts will only reform the covenants that are activity restraints or non-solicitation covenants.

What makes a non-compete unenforceable? ›

Many Non-Competes are unenforceable because they restrict competition across too broad of a territory. Non-Competes usually describe a restricted area in which the employee cannot compete.

How enforceable are non-compete clauses in the US? ›

Non-compete clauses are generally not enforceable. However, LegalNature's non-compete agreement may still be used to prohibit the employee from soliciting other employees (but not customers) away from the employer.

How many states recognize the public policy exception? ›

Forty-two states plus Washington, D.C., have the public policy exception in place. The states that do not include: Alabama. Florida.

What is the purple pencil rule? ›

The most flexible approach has been referred to by commentators as the purple pencil doctrine though many courts simply refer to it as “reformation.” Under this approach, courts may reform or rewrite covenants not to compete to be consistent with the parties' original intent and to be enforceable under applicable law.

What is red pencil rule? ›

(1) The court can throw out the entire covenant not to compete. This is sometimes called the “red pencil” doctrine. (2) The court can attempt to rescue a portion of the contractual provision by striking out the portion of the clause that renders it unenforceable.

What is a promissory estoppel? ›

Overview. Within contract law, promissory estoppel refers to the doctrine that a party may recover on the basis of a promise made when the party's reliance on that promise was reasonable, and the party attempting to recover detrimentally relied on the promise.

How often do non-competes hold up? ›

One to two years is typically reasonable, while three to five years is unlikely to be upheld by a court.

What are the three 3 exceptions to employment at will? ›

The three major common law exceptions are public policy, implied contract, and implied covenant of good faith. The at-will presumption is strong, however, and it can be difficult for an employee to prove that his circumstances fall within one of the exceptions.

What states aren't right-to-work? ›

In states where there are right-to-work laws, employers and labor unions are prohibited from forcing any employee that is not part of the union to pay fees.
Right to Work States 2023.
StateRight to Work Law Adopted
North Carolina1947
North Dakota1947
22 more rows

What groups Cannot grant rights to employees? ›

Most employees in the private sector are covered under the NLRA. The law does not cover government employees, agricultural laborers, independent contractors, and supervisors (with limited exceptions).


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2. President Joe Biden: Lack of competition results in high prices for goods, services
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3. Pres. Biden Signs Executive Order to Rein In Big Business
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4. Biden Planning Executive Order to Rein in Power of Big Businesses
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5. Biden Signs Executive Order to Boost Competition in U.S. Economy
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6. FTC proposes new rule to ban non-compete clauses
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