Tens of millions of American workers are subject to non-compete agreements — but the Biden administration wants to put an end to the large share of those provisions that it says unduly limit workes’ ability to change jobs and seek higher wages.
On Friday, the President issued an executive order asking the Federal Trade Commission (FTC) to use their power to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The request was part of a sweeping order focused on promoting competition throughout the American economy at a time when corporate consolidation has weakened the position of workers, small businesses and consumers and given large companies the upper hand.
About half of private-sector employers require at least some of their workers to sign non-compete agreements, which typically ban them from working for a competing business — or starting one themselves — for a certain period of time after leaving their jobs, according to a 2019 national survey by the Economic Policy Institute (EPI). The organization argues that such clauses are part of a larger trend of companies limiting the rights of employees, contributing to decades of mostly-stagnant wages for the majority of workers.
Non-competes are unenforceable in three states — California, North Dakota and Oklahoma — except in limited circumstances, though the survey found that many companies still required employees in these states to sign them. Several other states ban their use for low-wage workers.
Within the retail industry, 25.4% of companies surveyed by the EPI said they require all employees to sign non-compete agreements, while 41.8% said at least some of their workers are subject to the agreements.
While the FTC will still have to take action before the executive order directly impacts American employers and workers, the department’s newly-confirmed chair, Lina Khan, has previously written in favor of restricting such clauses. “These agreements deter workers from switching employers, weakening workers’ credible threat of exit, and diminishing their bargaining power. By reducing the set of employment options available to workers, employers can suppress wages,” Khan wrote in a law journal in 2019. “Given the paucity of private litigation challenging non-compete agreements as antitrust violations, the FTC might consider engaging in rulemaking on this issue.”