How Joe Biden’s non-compete order could make it easier to quit your job

Joe Biden sent a clear message to businesses: Make it easier for workers to leave – or the government will do it for you.

The presidential decree of July 9 targets an increasingly common and often criticized feature of the labor market: non-competition agreements. Under these restrictive agreements, which covers about one-fifth to one-half of workers in the private sector, employees forgo future work in their industry as a condition of keeping their current job.

Now, Mr. Biden has ordered the Federal Trade Commission to “restrict unfair use” of these and any other agreements “which may unfairly limit the mobility of workers.”

These few words are aimed at “one of the most powerful tools employers have to restrict their employees and what they do after employment is terminated,” according to lawyers for Fisher Phillips, an employer-side law firm. . “It’s a potential change for employers nationwide,” they said during a recent podcast.

The coronavirus pandemic has sparked further criticism for these agreements.

“In the context of the pandemic, which has caused the layoffs of millions of people, it is safe to say that at least some of these workers are being forced to seek other opportunities during this crisis,” said John Lettieri, head of the economic innovation group. , a think tank that campaigns against non-competition.

Indeed, at least four employers – including an accounting firm and a real estate brokerage house – have tried to impose non-competition against the workers they dismissed, the lawsuits in court.

Supporters of change hope the FTC will put the brakes on these deals for good. Barring a ban, they cite recent state laws and a growing body of research as a guide for what they call the most urgent changes to restrictive employment contracts.


Half of employers require a non-compete agreement …

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Here’s how canceling those contracts could change workplaces almost everywhere in the years to come.

Higher wages for hourly workers

Low-wage workers suffer the most from restrictive labor agreements, which can bar workers like janitors, security guards, sandwich makers and phlebotomists from leaving for better pay – even if these entry-level workers are the least. likely to have access to trade secrets. supposedly protect.

“When your mobility is hampered, your ability to negotiate better terms in your current job is also hampered,” said Rachel Arnow-Richman, a professor of law at the University of Florida who has extensively studied non- agreements. competetion.

According to a study by the left-wing Economic Policy Institute, about 3 in 10 workers earn less than $ 13 an hour for employers who demand these agreements.

In recent years, a dozen states have decided to exclude low-paid workers from restrictive agreements. The FTC could do the same, either by excluding workers who earn less than a certain dollar amount, or perhaps those with hourly jobs or less education.

“I think no one would be surprised to see the FTC quickly support this type of limitation. The question we are asking ourselves on the ground, and waiting and watching to see, is how far they will go beyond the ban on these agreements with vulnerable. workers, ”said Arnow-Richman.


Biden signs a decree promoting the competition …

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When non-competition is prohibited, workers’ wages increase. Oregon’s non-compete ban on hourly workers in 2008 led hourly wages for all workers to rise between 2% and 3%, according to a study. (The improvement for workers who were in fact non-competitive was even greater, perhaps as much as 20%, according to the study.)

More mobility for well-paid workers?

Many working-class advocates say the government should go further and limit non-competition for more than those who are poorly paid.

“Most people live on paychecks, even though they are not badly paid and should be able to make a living,” said Terri Gerstein, director of the national and local law enforcement program at Harvard. Law School Labor and Worklife Program.

Gerstein noted that there were other legal means, including less restrictive contracts, that companies could use to protect trade secrets. “Preventing someone from earning a living in their field, where they live, with an employer other than yourself, is far too harsh and too brutal an instrument to remedy it,” she said.

Last year, Washington state banned non-competition for anyone earning less than $ 100,000 or less than $ 250,000 as an independent contractor. Hawaii took the opposite route and got rid of non-competition for tech-only workers, which resulted in a 4.2% pay rise for new hires and a 12% increase in employee mobility. workers.

It is also possible that the administration will go beyond non-compete agreements, said John Siegal, partner at the BakerHostetler law firm and head of its Noncompete and Trade Secrets group. The wording of Mr. Biden’s recent order allows the FTC to review a multitude of restrictive agreements, including: nondisclosure agreements; non-solicitation agreements, in which employees agree not to do business with clients of their former employer; and no-poaching agreements, in which companies agree not to recruit workers from each other.

“If they do, there will be a really comprehensive investigation into the nature of the job and the types of duties employees owe companies when they leave,” Siegal said.

More transparent job offers

Currently, many employees who sign non-compete agreements don’t know they will until they show up for their first day on the job and receive a package of documents from their new HR department. A study has shown that about a third of workers sign these agreements after accepting a job, and only 10% negotiate.

To resolve this issue, the FTC could implement certain transparency requirements. For example, this could require employers to advertise in job postings that certain jobs will have non-compete agreements and that the employee can negotiate such agreements.

“No need to impose non-compete on people who are three, five, eight years old in their jobs and say, ‘Now you have to sign this or we’ll let you go,’” Siegal said. “It’s a pretty heavy approach.”


Demand for restaurant workers could increase wages …

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Some states already require it. Illinois and Massachusetts, for example, require that a company notify its employees that it will have to sign a non-competition notice and that it has the right to consult a lawyer, at least 10 business days before signing.

Fines – or lawsuits – for bad employers

Some worker advocates say banning coercive contracts is not enough and that the FTC should penalize employers who abuse such agreements.

As proof, they point to California, where non-competition agreements are not enforced, but most workers do not know it. As a result, California employers are using these restrictive contracts just as much as employers elsewhere in the United States, and they are having the desired effect: scaring workers off for better jobs.

“There is no deterrent for the employer to include it in the employment contract. The worst thing that would happen is a court declares [the noncompete] empty, ”said Gerstein of Harvard. “There must be a deterrent effect on the excessive control of employers.

In addition to government fines on employers who misbehave, the FTC could allow individual workers to sue if they believe a company has broken the law. This is how most workplace laws – including laws governing wages and prohibiting discrimination – are enforced, Gerstein noted.

Pay when the job is done

The FTC could also decree that if companies want to prevent their employees from working elsewhere, they must pay for the privilege. Massachusetts recently passed such a law, requiring employers to pay 50% of a former worker’s salary while they are absent from the workforce. The law also excludes interns and workers under the age of 18 from non-competition.

Such a provision, nicknamed “gardening pay”, would be another cost to be borne by the employer, forcing it to be more selective as to when to apply it.

It is not only workers and their future employers who would benefit from eliminating non-competition. Starting a business – who jumped in the pandemic – could also benefit if workers weren’t discouraged from pursuing startups in a former employer’s field.

“There is a very conservative free market reason for being wary of the way non-competition is used: competition is a big driver of the economy,” Lettieri said. “This affects tens of millions of workers, this is not a niche deal just for top executives.”

Arnow-Richman of the University of Florida agrees, “Just as we want consumers to have a choice of where they market the app they develop, or whether their data is shared or not, we also want workers to have the choice of where to work and what their terms of employment are, ”she said. “The right of a worker to find a better paying job, a job which offers more opportunities, more training, is not only something that our system allows, it is at the heart of what our labor market. work is supposed to encourage. “

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