NATIONWIDE— The National Employment Law Project (NELP) applauds the Federal Trade Commission’s (FTC) rule banning non-compete contracts for virtually all workers. These exploitative contracts, which affect millions of workers across industries and have an especially negative impact on workers of color and women, have been shown to depress wages, reduce job mobility, and stifle labor competition that can lead to better workplace conditions.
“The FTC’s ban on non-competes will empower workers throughout the country,” said Rebecca Dixon, president and CEO of NELP. “For too long, employers have taken advantage of the lack of laws and regulations in this area to push these so-called ‘agreements’ onto unsuspecting workers across all income levels and job titles. These provisions, which are forced on workers, have depressed wages and working conditions by eliminating the most effective means workers have to improve their jobs—quitting to take a better job. This ban will ensure that non-competes no longer limit workers’ freedom to change jobs, demand better working conditions, and achieve upward mobility in their careers.”
NELP also commends the FTC for ensuring that independent contractors are also covered under this ban.
“With employers routinely misclassifying workers as independent contractors, the FTC rightly recognizes that without broad coverage, employers will have an incentive to misclassify workers even more than they already do,” said Dixon.
“Independent contractor misclassification is itself a form of unfair competition that reduces wages and strips workers of bedrock workplace protections; these workers are similarly in need of protection from these abusive contracts.”
BACKGROUND
Non-compete provisions prevent workers from working for a competitor company during or after their current employment. More than 30 million workers—at least 18 percent of the U.S. workforce—are required to sign non-competes as a condition of accepting a job.
Non-competes, which were originally used only in highly paid executives’ employment contracts, are now found in almost all occupations, including sandwich makers, dog walkers, and hotel workers. Even workers labeled as “independent contractors”—who should have the freedom to work for multiple clients—are often required to sign non-competes that limit where they can work.
Employers often present non-competes as a “take it or leave it” contract, forcing workers either to sign or forego employment. Consequently, it is estimated that less than 10 percent of workers have any ability to negotiate these clauses, and 93 percent of them read and sign them anyway. In addition, 30 to 40 percent of workers are asked to sign non-competes after they have already accepted the position.
Not only do businesses routinely demand that their workers sign non-competes, they also use similarly coercive methods to ensure compliance that make it nearly impossible for most workers to challenge these provisions in court.
The growing use of non-competes has also been linked to increased monopsony power, where employers can effectively set wages lower than what free competition would demand. When workers are blocked from seeking better job opportunities, and employers do not have to offer higher wages to retain or replace them, the result is a job market that materially reduces wages for all workers.
Non-competes perpetuate and exacerbate racial and gender wage gaps by decreasing entrepreneurship, reducing wages, and providing employers with more power to discriminate through this increased monopsony power. Women and workers of color are less likely to negotiate than their white counterparts, making non-competes more binding for them.
Research shows that banning non-competes would close the earnings gap between white men and Black women by 4.6 percent; 5.6 percent for white women; 8.7 percent for Black men; and 9.1 percent for non-Black, non-white women. Non-competes also can trap workers in abusive job situations where they face sexual or racial harassment by making it difficult for them to quit and take a new job.
The FTC’s rule to ban non-competes includes independent contractors, bans non-disclosure provisions that function as de facto non-competes, and limits “training repayment agreements,” which have been used as “back door” non-competes that force workers to stay in positions to “repay” the employer for providing on the job training.
