OnLabor - The Death of the Non-Compete Clause May Be Imminent
Legal director Sandeep Vaheesan and senior legal analyst Daniel Hanley layout the major legal and policy procedures lined up in 2024 for the banning of noncompete clauses.
According to a 2019 survey, as many as 60 million working people in the United States are subject to non-compete clauses. These contracts prevent workers up and down the income scale and across occupations from leaving for a better job or starting their own business in their own community, state, or even anywhere in the country. Non-compete clauses rob workers of a critical source of leverage—the effective right to leave—and depress wages and wage growth over time and lock people into abusive and discriminatory work environments. But their end may be near. After years of research, reporting, and advocacy (including by our organization the Open Markets Institute), federal regulators and state legislatures took major steps to eliminate these coercive contracts in 2023. While major policy and legal fights lie ahead, 2024 may be the year in which we finally eliminate these contracts in the United States.
The Federal Trade Commission started 2023 with a bang, by proposing on January 5 to outlaw non-compete clauses. The proposal included no carve-outs based on income or occupation, so all workers, whether an Uber driver or a neurosurgeon, would be protected. The FTC is reportedly on track to publish a final regulation this spring. This rule, if in line with the proposal, would free all workers from conventional non-compete clauses. On top of this regulatory effort, the FTC last year nudged several employers to cease using these contracts with their workers.
Later in the year, the National Labor Relations Board followed suit. In the spring, the agency’s general counsel, Jennifer Abruzzo, published two memos directing her staff to file cases against employers that use non-compete clauses. In one of the memos published last May, Abruzzo stated that these contracts can violate the National Labor Relations Act, as they can “reasonably tend to chill employees in the exercise” of their rights under the act. Abruzzo highlighted several issues caused by non-compete clauses, including their potential to restrict employees from seeking alternative employment and organizing. Her staff filed a complaint in September against a cosmetics company imposing broad non-competes and other restrictive contracts on workers that prevented them from finding new employment and deterred them from discussing the terms and conditions of their current employment. In January, the company agreed to drop the challenged contracts. While the NLRB does not have authority over independent contractors and workers with supervisory powers, it can still abolish non-compete clauses for millions of workers in the private sector.
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