Here’s how the FTC’s proposed ban on non-compete clauses would help workers
It would raise wages for low-income workers while letting employers choose who to hire
American workers generally have little job security. As a general rule, employers can fire non-union workers for any reason, a legal doctrine known as “employment at will.”
Incredibly, in the last decade or so, employers have eroded job security below even this abysmal standard, by forcing millions of hourly workers to sign “non-competes” that prevent them from leaving jobs for a better opportunity. Now many employers are loudly opposing a federal effort to curtail this abuse of employer power.
The Federal Trade Commission has proposed a broad ban on the use of non-compete clauses. Non-competes prevent workers from moving to another employer in the same or related fields for an extended period of time after a job ends – if they try it, they can be forced to quit the new job and/or pay heavy financial penalties.
Thus, workers are either stuck in their current jobs, which may have poor pay and working conditions that are difficult to change, or they have to start over, at the bottom of the wage scale, in a different field.
As a legal aid attorney with Community Legal Services (CLS) in Philadelphia where I have represented low-wage workers for 16 years, I have seen the growing need to ban the use of non-competes.
I have worked with many clients such as Ms. Reed, who had been a part-time janitor making $10/hour for a cleaning contractor. When her contract ran out, a Catholic school she had been cleaning at hired her full time.
However, she was quickly fired when the school received a litigation threat from the contractor over a non-compete clause she didn’t even remember existed. In this case, the clause was legally unenforceable – but the school told me it didn’t matter, because they couldn’t afford litigation when it was much less costly to simply hire someone else.
Non-competes were originally intended to affect high-income jobs where workers can bargain for higher salaries in exchange for limitations on their future opportunities. However, employers have considerably expanded their use of non-competes to cover many low-wage workers like Ms. Reed.
Today, at least 18% of U.S. workers are subject to non-competes, and almost 30 percent of non-competes cover workers making below $13 per hour. My low-wage clients who are not unionized rarely have the power to negotiate the terms of their employment – they get take-it-or-leave-it deals, and they are subject to termination at any time for almost any reason under at-will employment.
The typical justification for at-will employment is that employers and employees equally get the unrestricted opportunity to end their relationship and walk away.
At-will employment strongly favors employers, leaving them free to fire workers at any time without warning or severance pay, while workers who quit without compelling reasons don’t even qualify for unemployment compensation.
The one benefit to workers from at-will employment is the freedom to leave a job and seek work anywhere else. The huge increase in non-competes takes away even that illusion of parity: workers can be fired at any time, without cause, but new jobs in their field are off limits.
Low-wage workers in many fields come to us for help dealing with non-competes: hairdressers, foreign language translators, janitors, home health aides, ambulance drivers, and more.
Strict non-compete enforcement reduces the earnings of women and workers of color by twice as much as white male workers. The breadth and severity of the problem is recognized on both sides of the aisle in Washington: U.S. Sen. Todd Young, R-Ind., co-sponsor of a bipartisan bill in Congress that would ban most non-competes, notes that non-competes “stifle wage growth … innovation, business creation and human freedom.”
Indeed, the mere existence of a non-compete prevents workers from leaving for better jobs. If an ex-employee gets a new job offer, the old company threatens to sue the worker and the new company, and the mere threat is enough to get the new company to cut the worker loose.
Low-wage workers, facing unaffordable penalties and litigation costs, struggle to challenge non-competes in court. Thus, whether by mere threat, or actual lawsuits, non-competes decrease competition, which lowers overall wages.
The FTC’s proposal – which is open for comment through April 19 – would restore the deal that was supposed to underpin at-will employment: employers would be free to hire whoever they wished, and low-wage workers would be free to switch to higher-paying jobs as they seek to provide for their families.
You can support the rights of low-wage workers to make a fair living by submitting a comment in support of the FTC’s proposal.
Brendan Lynch is an Employment Attorney at Community Legal Services of Philadelphia. This commentary was first published by the Pennsylvania Capital-Star.