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United States

US Moves To Bar Noncompete Agreements in Labor Contracts (nytimes.com) 169

In a far-reaching move that could raise wages and increase competition among businesses, the Federal Trade Commission on Thursday unveiled a rule that would block companies from limiting their employees' ability to work for a rival. From a report: The proposed rule would ban provisions of labor contracts known as noncompete agreements, which prevent workers from leaving for a competitor or starting a competing business for months or years after their employment, often within a certain geographic area. The agreements have applied to workers as varied as sandwich makers, hair stylists, doctors and software engineers.

Studies show that noncompetes, which appear to directly affect roughly 20 percent to 45 percent of private-sector U.S. workers, hold down pay because job switching is one of the more reliable ways of securing a raise. Many economists believe they help explain why pay for middle-income workers has stagnated in recent decades. Other studies show that noncompetes protect established companies from start-ups, reducing competition within industries. The arrangements may also harm productivity by making it hard for companies to hire workers who best fit their needs.

The F.T.C. proposal is the latest in a series of aggressive and sometimes unorthodox moves to rein in the power of large companies under the agency's chair, Lina Khan. "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," Ms. Khan said in a statement announcing the proposal. "By ending this practice, the F.T.C.'s proposed rule would promote greater dynamism, innovation and healthy competition."

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US Moves To Bar Noncompete Agreements in Labor Contracts

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  • by rgmoore ( 133276 ) <glandauer@charter.net> on Thursday January 05, 2023 @10:41AM (#63182116) Homepage

    The prevalence of non-competes is frustrating, because we have very solid evidence they're unnecessary. California forbids non-compete clauses in employment contracts*, and it hasn't caused any serious problems for businesses based here. There is evidence, mentioned in the original article, that allowing non-competes is bad for startups, and a common theory says California's vibrant startup culture is precisely because state law forbids non-compete clauses.

    *Non-compete clauses are allowed for business owners as part of buy-outs. So if you sell your business, the new owners can include not setting up a competing business as part of the sale.

    • by SvnLyrBrto ( 62138 ) on Thursday January 05, 2023 @11:12AM (#63182210)

      It's more than just theory. It's well-documented history. Besides Bill Hewlett and David Packard, the names you'll see most often offered up as the "founders" of Silicon Valley are the "traitorous eight" from Shockley Transistor Corporation (Guess what they made?). After luring the eight (Whose names will look very VERY familiar.) to the Bay Area which, at the time, was not yet "Silicon Valley" and had little to no semiconductor industry to speak of, William Shockley turned out to be a complete ass to work for and alienated the lot of them. So, as is common in those cases now, they bailed out and, instead of moving back east where a non-compete might have been able to be enforced, stayed in California and founded Fairchild Semiconductor; where they designed and built transistors for the Air Force's ICBM fleet. Fairchild, in turn, was the HP of its day and wound up training executives that, in turn, left to found companies like Intel, AMD, Teledyne, and others. And one of the eight: Kleiner, teamed up with a fellow from HP named Perkins and helped provide the VC for more startups than you can count; plus created the Sand Hill scene which funded even more.

      None of that would have been possible if California were plagued by those east-coast-style noncompetes. The eight would have just had to suffer ignominious suffering under Shockley's "The floggings will continue until morale improves." management style. And SV would never have happened.

  • by Joey Vegetables ( 686525 ) on Thursday January 05, 2023 @10:49AM (#63182150) Journal

    Among many other problems, I'd guess this will shift more of the costs of industry-specific training away from employers and onto employees.

    Right now, employers can offer training to their employees that might make them more valuable to competitors, because noncompetes make it harder for them to just quit and go work for one of them.

    Without noncompetes, no employer will offer that kind of training. To do so would be to actively work against their own interests in a competitive marketplace.

    Yet, all employers need for their employees to have that training.

    I don't see any way for that to happen other than for employees to get it themselves.

    And that will be a lot harder for some people, given their level of financial security or lack thereof, than others.

    • by realxmp ( 518717 ) on Thursday January 05, 2023 @11:07AM (#63182194)

      Among many other problems, I'd guess this will shift more of the costs of industry-specific training away from employers and onto employees.

      Right now, employers can offer training to their employees that might make them more valuable to competitors, because noncompetes make it harder for them to just quit and go work for one of them.

      You can do this for super-expensive training without non-competes, you create a contract that says if you leave within x months of receiving this training then you owe us y amount (reduced by z per month you stay). That way if you want to bail out to another competing company early, they're going to need to be willing to pay off that training cost to hire you. The one reason why this might be less popular in the US is that you guys love to be able to fire people at the drop of a hat and for these training contracts to be equitable folks fired without cause don't have to pay back the training cost.

      • There are companies that do this. But it's not a popular arrangement. The danger to the employee is that circumstances, including "constructive discharge" (purposefully mistreating an employee to encourage him or her to quit), might result in having to pay back that training money through no fault of his or her own, and there's never a guarantee that they'll actually be able to use that training.
      • by Ichijo ( 607641 )

        Or just offer RSU's to encourage trainees to stay until the shares are vested.

    • Why would I go through the ball-busting trouble of starting a new job and finish the training just to leave and work somewhere else that would have also done that? Retention is the problem you're describing, which is a whole different animal.
    • by hjf ( 703092 )

      Oh yes and also, if the goverment allowed to have competition, no one would ever open a business because someone else may open a competing business and steal their clients.

      Wait a second...

    • like MD's can use them to stop some one from working at BK.
      noncompetes have been used to lock some people into 60+ hour weeks. With stuff like work it or your fired and under that noncompete the only jobs you will get for the next 2 years is fast food as our noncompete bans work in your skill!

      • That's a fair point. However, with any luck, courts are going to consider this when deciding whether or not to enforce a noncompete (or, somewhat equivalently as others have pointed out, a NDA) in any specific case.
    • > To do so would be to actively work against their own interests in a competitive marketplace.

      wouldn't the solution to this problem be to make your employees want to work for you?

      • Ideally, sure. But things don't always work out, for reasons that might be either party's fault, or both's, or neither.

        Also, for reasons I don't understand, many companies are much more willing to offer competitive pay to new hires, than to existing ones. That's part of why turnover in our business is so extreme. If one wants a raise, or in many cases a promotion, it's often far easier to get that from a different employer, than one's current employer. That's part of what I believe they need to change i

    • by WCLPeter ( 202497 ) on Thursday January 05, 2023 @12:27PM (#63182394) Homepage

      Right now, employers can offer training to their employees that might make them more valuable to competitors, because noncompetes make it harder for them to just quit and go work for one of them.

      Employers who worry about someone leaving after they've spent the time training them how to do something seem to always forget they have this really powerful tool called "money". If an employer encourages a strong work / life balance, a toxic free work environment, and pays enough "money" to live a decent stress free life when not working then it's unlikely the employee would ever want to leave them.

      Switching jobs is a pain in the ass, especially if they use a different provider for their benefit and pension / retirement savings accounts. People who are happy at their job and have a clear distinction between "work" and "home" aren't going to move around, especially if they're paid competitively. Its companies who want to train you to do a complex task while continuing to pay you far less than what people with those skills have elsewhere who have this issue, companies who recognize your skill and bump your wages to match will typically do just fine.

      • I agree.

        But for whatever reason, employers in my experience don't usually see things this way.

        Losing productive employees is also a huge expense to employers, and I don't get why so many of them do far less than they reasonably could to avoid that.

        Best I can tell, sometimes it's to avoid the situation where they had to bump someone's salary by 20-30% in order to retain that person, and then word gets out, everyone else now wants that same kind of percentage, even if their compensation is actually somewhat c

    • by quall ( 1441799 )

      At least they'll be paid MORE for their skills, whereas employers higher you at your current level, but then expect you to go through all this training without any pay increase.

      But I still call BS. We train new highers because there isn't anyone available with the skills. If they quit within 1 year, then they need to pay back the cost of training. The employee obviously needs to agree to this. So yes training will still exist.

  • by WankerWeasel ( 875277 ) on Thursday January 05, 2023 @10:49AM (#63182152)

    Most states don't enforce them anyways. For example, Minnesota courts haven't upheld one in more than 40 years.

    • As an individual you can’t risk litigation getting that far. Even if you win, you will likely have already lost. The mere threat hanging over your head of a major corporation sending its legal attack dogs at you is massively chilling by itself.

  • by muh_freeze_peach ( 9622152 ) on Thursday January 05, 2023 @11:04AM (#63182188)
    I read it, signed it knowing it was unenforceable, and ignored it.
    • A lot of folks assume this. It's not enforceable in some places, but it very much is in others. Further, most companies I've worked for will proactively ask whether a prospective employee has signed a relevant noncompete, and, if so, will not consider that person until it has expired (typically here it would be between one and several years later). While litigation over this topic is uncommon, it is VERY expensive and time-consuming when it does happen. No one wants to risk that.

      I for one honor my commi

      • It's always heartwarming to read about a proud, obedient serf. It really makes one pine for the good old days. [wikipedia.org]
      • The one I signed was trying to tell me that I was not allowed to work in my field for 7 years after leaving that company. I said "Yeah have fun with that" and continued living my life as a free man.
        • That seems excessive, and possibly unenforceable (note: not a lawyer, not *your* lawyer, don't play one on TV, etc.). Mine have always been for a year or two. I think that's reasonable. Otherwise I wouldn't have signed them.
    • Be careful. You say non unforceable but what you do not see behind the scenes in HR checking a secret database or website or Taleo HR onboarding (God I hate that ###) blacklisting you without you even knowing. You may apply for other jobs but you won't ever hear anything back after a screening interview and you won't ever know why.

      Since this is all hush hush most IT workers are ignorant about the issue even if it is not enforcable your employer or another one will still check out of goodwill on a secret han

  • Just saying, every comment I see here that thinks this is bad or questionable is from the perspective of the employer; people can get poached or people can get trained and leave or people can bring knowledge with them to new jobs. None of these are downsides for the employee in question just the current employer to which I would say, why should their priorities take preference over the workers themselves?

    This seems like an upside for existing workers to have more leverage. If a company spent years "traini

  • Probably, someone just try to prevent what happened before with Japan Know-How. Read these articles: https://www.reuters.com/articl... [reuters.com] https://www.industryanalysts.c... [industryanalysts.com] https://asia.nikkei.com/Busine... [nikkei.com]
  • In soviet russia, labor contracts can do this?
  • This should be decided by elected representatives, and the courts if they overstep their authority. Then voters can decide if they agree with the reps' decisions in the voting booth.

    The FTC should write a recommendation and propose legislation.

    • Does the FTC even have the power to issue a regulation like this? The FTC is about protecting consumers- this seems to fall wildly outside the bounds of that. Though I think banning non-competes is the right policy; Congress has to do it. I can't see any remotely honest court actually upholding the FTC's power to do this.

      • by Trickster Paean ( 185378 ) on Thursday January 05, 2023 @02:42PM (#63182756)

        Yes, the FTC has the power to issue a rule like this. See 15 U.S.C. 45 [cornell.edu] and 15 U.S.C. 57a [cornell.edu], concerning "Unfair methods of competition in or affecting commerce" and the associated rulemaking procedures the FTC must follow.

        • Yes, the FTC has the power to issue a rule like this. See 15 U.S.C. 45 and 15 U.S.C. 57a, concerning "Unfair methods of competition in or affecting commerce" and the associated rulemaking procedures the FTC must follow.

          Isn't it amazing what happens when an administration actually asks the lawyers what's legal before trying to do it? People forget that's possible, after four years of an administration which didn't ask and always guessed wrong.

    • Elected representatives already decided this when they enacted Section 5 of the FTC Act, codified at 15 U.S.C. 45, along with the rulemaking provision codified in 15 U.S.C. 57a.

      Congress delegated the ability to make rules concerning "Unfair methods of competition in or affecting commerce", and the FTC is using the authority that Congress granted to it.

      If you don't like the rule, you can always comment in the rulemaking proposal, and if the FTC adopts the rule anyway, you can later sue in the courts.

  • Compensation (Score:4, Interesting)

    by Paul Carver ( 4555 ) on Thursday January 05, 2023 @03:56PM (#63183004)

    I'd be willing to sign a non-compete if and only if it included compensation for the term of the non-compete. I'll agree to not go work for a competitor for as many years as you care to pay me an annual amount equal to my highest year's compensation plus an annual increase that matches a government published inflation rate percentage.

    At any time you may provide me with six months notice of your intent to stop paying me and the non-compete will cease to apply as of the date of the last payment I receive from you.

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