noncompete clauses
Trump Judge Partially Blocks FTC Ban on Anti-Worker Noncompete Clauses
"We will keep fighting to free hardworking Americans from unlawful noncompetes," the agency said in response to the decision.
A Trump-appointed federal judge on Wednesday partially blocked a Federal Trade Commission rule banning most noncompete clauses, ubiquitous anti-worker agreements that prevent employees from moving to or starting their own competing businesses.
Judge Ada Brown of the U.S. District Court for the Northern District of Texas issued a preliminary ruling preventing the ban from taking effect against the handful of plaintiffs that sued the FTC over the rule mere hours after it was finalized in April. The plaintiffs include the tax service firm Ryan LLC and the U.S. Chamber of Commerce, the nation's largest corporate lobbying organization.
Researchers at the Revolving Door Project noted Wednesday that Ryan LLC was "represented by [former President Donald] Trump's Labor Secretary, Eugene Scalia, via BigLaw firm Gibson Dunn."
Watchdogs accused the U.S. Chamber, which celebrated Wednesday's decision, of "judge-shopping," a tactic the organization frequently uses to secure favorable legal outcomes. District courts in Texas fall under the purview of the 5th Circuit Court of Appeals, which is dominated by right-wing extremists.
In her Wednesday decision, Brown did not immediately grant the plaintiffs' request for a nationwide injunction against the ban on noncompetes. But the judge signaled she would likely block the rule in its entirety with her final decision in the case on August 30—just days before the ban's scheduled implementation date.
"The court concludes the commission has exceeded its statutory authority in promulgating the noncompete rule, and thus plaintiffs are likely to succeed on the merits," Brown wrote in her 33-page decision.
"The need for judicial reform in Congress has never been more clear as far-right 5th Circuit territory judges have effectively put up a giant neon sign, 'Corporations, Please Sue Here.'"
A spokesperson for the FTC said in response to the ruling that the agency stands by its "clear authority, supported by statute and precedent, to issue this rule."
"We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans' economic liberty," the spokesperson added.
The FTC, led by antitrust trailblazer Lina Khan, estimates that roughly 30 million U.S. workers are bound by noncompete agreements that restrict their ability to switch jobs in pursuit of higher wages and better benefits. The commission believes its ban on noncompetes would result in up to $488 billion in wage increases for U.S. workers collectively over the next decade.
Progressive advocacy groups cast Wednesday's decision as the latest attack on workers—and gift to corporations—by a Trump-appointed judge.
"By halting the noncompetes ban, this court is standing in the way of real gains for workers again," said Emily Peterson-Cassin, director of corporate power at Demand Progress. "With the decision overturning Chevron earlier this week, it's a one-two punch against everyday people."
Tony Carrk, executive director of Accountable.US, said in a statement that "the industry-funded U.S. Chamber continues to cost everyday Americans a ton of money with its suing spree against the Biden administration crackdowns on corporate greed, junk fees, and anti-worker barriers."
"The U.S. Chamber's lawsuit holding up the administration's credit card late fee rule is already costing Americans $27 million a day —and now this latest lawsuit could slam the door shut for millions of American workers to begin pursuing better opportunities," said Carrk. "Noncompete clauses could force employees to endure low wages and poor working conditions as the rule drags through the courts. The big bank and Wall Street CEOs on the U.S. Chamber's board have gotten a huge return on their investment while American workers pay the price."
"The need for judicial reform in Congress has never been more clear," Carrk added, "as far-right 5th Circuit territory judges have effectively put up a giant neon sign, 'Corporations, Please Sue Here.'"
The FTC’s New Ban on ‘Noncompetes’ Helps Workers Reclaim Their Power
By restricting employees from joining competitors or starting their own ventures, noncompetes impede not only individual career and wage growth but also the dynamism of the broader economy.
Changing jobs can often be the best way to get a raise. But employers frequently force workers to sign “noncompete clauses,” contract stipulations that make it harder for workers to move to better jobs and artificially depress wages.
That will change later this year.
The Federal Trade Commission recently issued a new rule declaring that most noncompete clauses in employment contracts are unfair. The new rule bans employers from requiring workers to sign these agreements and prohibits the enforcement of existing “noncompetes” for workers other than senior executives.
The only leverage non-union workers have with their employers is their ability to quit and take a job somewhere else. But employers have been using noncompete agreements to cut that source of worker power off at the knees.
This is an important step toward fostering fair competition and empowering workers.
Noncompete agreements are employment provisions that ban workers at one company from working for, or starting, a competing business within a certain period of time after leaving a job. They’re ubiquitous. The Economic Policy Institute finds that more than one out of every four private-sector workers are required to sign one as a condition of employment.
These agreements aren’t limited to high-wage workers in knowledge-sensitive occupations and industries. More than a quarter (29%) of private workplaces with an average wage of less than $13.00 per hour used noncompete agreements for all their workers, according to one survey.
The only leverage non-union workers have with their employers is their ability to quit and take a job somewhere else. But employers have been using noncompete agreements to cut that source of worker power off at the knees.
The research on the economic impact of noncompetes is clear: By keeping workers from finding better opportunities, they reduce wages and reduce the formation of new firms. In other words, by restricting employees from joining competitors or starting their own ventures, noncompetes impede not only individual career and wage growth but also the dynamism of the broader economy.
Employers don’t need noncompetes to protect their trade secrets, as they sometimes claim. Intellectual property law already provides significant legal protections for trade secrets. Noncompetes have been unenforceable in California for decades without keeping that state from becoming a leader in tech innovation.
Further, noncompetes are often bundled with other anti-competitive employer practices that harm workers.
For instance, over half of firms surveyed that required noncompetes for at least some of their employees also required workers to agree to mandatory arbitration, rather than the court system, to resolve disputes with their employers. This underscores that the purpose of noncompete agreements is to restrict employees’ options, not protect trade secrets.
Noncompetes are about reducing competition, full stop. It’s in their name.
Noncompetes are bad for workers, bad for consumers, and bad for the broader economy. By banning them, the FTC’s rule will help raise wages for workers and take an important step toward creating an economy that is not only strong but also works for working people.
Chamber of Commerce Sues to Block FTC Ban on Anti-Worker Noncompete Agreements
"Why does the U.S. Chamber of Commerce hate dynamism in the American economy, where workers are free to move to the best opportunities, and companies are free to recruit the best talent?" asked one economist.
The powerful U.S. Chamber of Commerce sued the Federal Trade Commission on Wednesday in an effort to block the agency's widely celebrated new rule banning most noncompete clauses, pervasive contract agreements that restrict employees' ability to work for or start a competing business.
The Chamber filed its lawsuit alongside the Business Roundtable and other corporate lobbying groups in a federal court in Texas. The suit came shortly after Ryan LLC, a tax service firm, filed the first legal challenge to the FTC's rule in a separate Texas venue.
"The commission's categorical ban on virtually all non-competes amounts to a vast overhaul of the national economy," reads the Chamber's complaint against the rule, which the FTC finalized in a 3-2 vote on Tuesday.
The agency, led by Biden-appointed Commissioner Lina Khan, estimates that roughly 30 million U.S. workers are subject to a noncompete agreement, limiting their ability to start their own companies or switch jobs in pursuit of better wages and benefits.
"Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned," Khan said in a statement Tuesday. "The FTC's final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market."
"Noncompetes are about reducing competition, full stop. It's in their name."
The Chamber, the largest corporate lobbying organization in the United States, signaled its intent to sue the FTC immediately after the agency finalized its new rule on Tuesday.
"The Federal Trade Commission's decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive," Chamber president and CEO Suzanne Clark said in a statement following the FTC's vote.
While the organization claims to fight for the interests of businesses small and large, a Public Citizen report published earlier this year found that the majority of the Chamber's legal work supports big corporations.
The Chamber acknowledged in response to questioning from a pair of Democratic senators last year that its corporate members use noncompete clauses—though the group did not specify which members.
"Why does the U.S. Chamber of Commerce hate dynamism in the American economy, where workers are free to move to the best opportunities, and companies are free to recruit the best talent?" asked University of Massachusetts Amherst economics professor Arin Dube in response to the Chamber's pledge to sue over the FTC's rule.
According to the FTC, its ban would boost the average U.S. worker's earnings by $524 a year, increase new business formation by close to 3% annually, and lower national healthcare costs by nearly $200 billion over the next decade.
"Noncompetes are about reducing competition, full stop. It's in their name," Heidi Shierholz, president of the Economic Policy Institute, said Tuesday. "Noncompetes are bad for workers, bad for consumers, and bad for the broader economy. This rule is an important step in creating an economy that is not only strong but also works for working people."