Big businesses rally to preserve their right to limit ex-workers’ job options
The Federal Trade Commission’s public comment period for its proposal to ban noncompete agreements closed Wednesday, just as major business groups ramped up their campaign against it.
In series of letters this week to the FTC, which proposed the restrictions in January, the U.S. Chamber of Commerce and a leading human resources group asked the agency to stand down or shrink its proposal and questioned the legal authority behind it.
Top labor unions and consumer advocates chimed in on the other side, arguing in favor of barring employers from limiting where their staffers can take jobs or start businesses after leaving. The lobbying crossfire came in addition to the more than 26,000 comments from the public the FTC gathered over the past several months.
Noncompete policies can range from prohibitions of working for a competitor or even working in the same geographic region. And the periods they cover vary, depending on what state courts deem enforceable, from six months to five years.
The outcome of the battle will affect large swaths of the U.S. workforce. Roughly 30% of private sector employers currently use noncompete agreements for all their workers, said Evan Starr, an economics researcher at the University of Maryland. Businesses that use the policies typically cite the need to protect trade secrets and other sensitive information from rival firms looking to poach talent.
The FTC, which estimates that banning noncompetes could boost workers’ earnings by nearly $300 billion annually and broaden job opportunities for 30 million Americans, will now review the flood of input. An FTC spokesperson declined to offer a timeline on the process but said the agency could adjust its proposal based on the feedback or solicit more commentary.
For workers, noncompetes typically function much as they did for Will Medina, a 32-year-old sales executive in Phoenix, Arizona, who found himself hemmed in by one nearly a decade ago.
After he graduated from college, Medina said, the public relations agency where he’d been interning offered him a job — but stipulated that he couldn’t work for any of its clients for four years if he left. Around five years later, “burnt out” and looking for the exits, Medina discovered that the terms sharply limited his job search.
His employer was a multicultural-focused agency in the area, he said, and had already developed business ties with many local companies where Medina was well-qualified to work.
“Reading it all after I left, I was like, ‘What the hell did I sign?’” he said.
After quitting Medina tried freelancing, but many of his contacts were still connected to his former employer. He eventually accepted an entry-level sales role at a local newspaper, which he said required a 20% pay cut and taking on a new roommate to afford his rent.
“I didn’t want to deal with any kind of suing or anything like that,” Medina said. “[My former employer] was known to sue or send a cease and desist. I was like OK well, ‘I’m not going to be able to do this industry stuff for a while.’”
The Chamber of Commerce, one of the nation’s most powerful business lobbies, organized a coalition of industry groups that sent a letter to the FTC on Monday urging the agency to “withdraw its proposed rule, and revert to the authority granted to it by Congress.”
Signed by more than 280 organizations — ranging from the National Retail Federation and the American Hotel & Lodging Association to trade groups for mortgage bankers, roofers and convenience stores — the letter said that noncompetes “promote pro-competitive interests far more effectively than alternatives,” such as trade-secret laws.
The groups argued that the policies “encourage investment in employees and help to protect intellectual property,” thus boosting innovation and attracting investment.
The chamber, which threatened in January to sue the FTC over its proposal, declined to comment.
On Wednesday, the Society for Human Resource Management sent the FTC a nine-page letter, which it provided to NBC News, calling the proposed rule “overbroad” and a threat to workers’ training and development. The group, which represents 325,000 HR professionals and executives worldwide, said the restrictions “will impede SHRM members’ ability to balance the needs of workers and employers and will reduce the contractual capabilities of reasonable and consenting parties” and called for narrower changes instead.
A few brand name companies such as Yelp and Microsoft have backed bans on noncompetes or rolled back their use internally. In 2021, a Yelp executive was barred from starting work at the company for a year and a half due to a noncompete he had signed as a Groupon employee.
Major labor and consumer organizations have also joined the debate. Several dozen groups, including the AFL-CIO, the International Brotherhood of Teamsters and the Consumer Federation of America, threw their support behind the FTC’s proposal in their own letter to the agency Wednesday. “Firms use non-compete clauses as a substitute for other means of retaining workers, such as good working conditions, high wages, and the opportunity for future raises and promotions,” the letter said.
Among the thousands of comments posted to the FTC’s online forum over the last few weeks, more people who self-identified as employees voiced support than criticized the proposed ban, with many of those in favor sharing frustrations akin to Medina’s.
“People traditionally think of noncompetes as something for very high-level executives who have access to confidential information or people who have access to trade secrets,” said Terri Gerstein, the director of the Project on State and Local Enforcement at Harvard Law School, “but they really have been used much more indiscriminately throughout the economy.”
Critics of noncompetes argue that they suppress pay, and nearly a dozen states already restrict or prohibit their use. Colorado recently banned noncompetes for workers below a certain income level, and California bars them outright. As many as 73 bills are currently pending in statehouses, most of them looking to tighten rules around the agreements.
In the five years after Oregon banned enforcement of noncompetes for employees earning less than the median U.S. family income for a family of four, hourly workers’ wages grew 6%, Starr’s research found, and their job mobility also rose 17%.
“There are many things that firms can do to protect themselves without noncompete agreements,” Starr said. If the FTC adopts new limits, he said, “we’ll definitely see more of the reliance on nondisclosure, non-solicitation [agreements] and more of the kind of perks such as higher wages, better benefits, etc.”
Nondisclosure and nonsolicitation agreements allow employers to seek damages from employees who spill trade secrets or certain company information. But unlike noncompetes, they don’t preemptively restrict workers’ ability to move jobs.
Many individual business owners voiced opposition to the proposed ban in the FTC’s online forum.
“This rule will negatively impact small businesses and economic growth and is not the result of legislation but rather bureaucracy,” wrote Mimi Steger, owner of North Port, Florida-based Total Martial Arts & Fitness.
Another commenter, Bruce Fearon, wrote in support of region-based noncompetes, noting that his medical practice focuses on lymphatic maladies and requires him to invest heavily in training new hires. “There is absolutely no incentive for me to teach anyone anything I know and practice, only to have them move into the neighborhood and compete against me,” Fearon argued.
Neither Steger nor Fearson responded to requests for interviews.
For now, businesses still have ways to coerce employees — especially lower- and middle-income ones — to stay, beyond nondisclosure and nonsolicitation agreements. “Training repayment” rules, for example, require workers to compensate their employers for development programs they undertake if they leave within a given time frame.