New Jersey co-leads effort supporting FTC’s proposed non-compete ban

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New Jersey Attorney General Matthew Platkin announced April 19 that the state is co-leading a multistate letter, along with California and the District of Columbia, in support of the Federal Trade Commission’s (FTC) suggested rule that would ban employers from imposing non-compete clauses on their workers.

Proposed back in January, the FTC estimated the change could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina Khan in January. “Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and health competition.”

The agency pointed out that companies use the clauses across industries and job levels, from hairstylists and warehouse workers to doctors and business executives. And, they say, that in many cases, employers use their outsized bargaining power to coerce workers into signing these contracts, while also noting that non-competes harm competition in the labor market by blocking workers from pursuing better opportunities and preventing employers from hiring the best available talent.

“Research shows that employers’ use of non-competes to restrict workers’ mobility significantly suppresses workers’ wages – even for those not subject to non-competes, or subject to non-competes that are unenforceable under state law,” said Elizabeth Wilkins, director of the Office of Policy Planning, in January. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”

The rule, which would bar employers from preventing workers from working for or starting a competing business within a certain time period after leaving a job, would apply to independent contracts and anyone who works for an employer, whether paid or unpaid.

It would also require employers to rescind existing non-competes and actively inform workers that they are no longer in effect.

Clearing up confusion

The multistate letter is also signed by the attorneys general of Colorado, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, New York, Oregon, Pennsylvania, Rhode Island and Washington.

The co-signers point out that, currently, the legality of such non-competes is left to the states, creating confusion for workers and distorting labor markets that cover more than one state.

“The undersigned State AGs support the Commission’s proposed rule because it will benefit workers and businesses in our states,” the AGs wrote in the letter. “We represent states that do and do not have state legislation regarding non-competes, and we offer examples from our diverse experiences, which underscore the need for a uniform, national rule.

“In addition, we offer several comments and recommendations regarding the proposed rule in response to the Commission’s request for comment,” the correspondence continues. “Specifically, the State AGs support the Commission’s functional definition of ‘non-compete clause,’ support the Commission’s broad definition of ‘worker,’ support the Commission’s proposal not to impose an income threshold on covered workers, and urge the Commission to clarify that the proposed rule does not preempt state laws that provide substantially similar or greater protections, nor does it preclude the concurrent enforcement of such laws by state agencies and residents.”

The AGs say that low- and middle-wage workers would benefit the most from the proposed rule, with a high potential for increases in wages and job mobility. They also believe it would promote gender and racial equity, pointing to studies that have found that non-competes cause women and non-white workers to see earnings reductions two times greater than that experienced by white male workers.

“I applaud the Federal Trade Commission’s step towards limiting non-compete clauses in the workplace,” said Platkin in a press release. “Employees deserve to move to new jobs or start their own businesses as their careers develop. The proposed national rule would allow for greater competition and fairness in the marketplace as businesses will have to find better ways to keep talented workers than the yoke of a non-compete clause.”

The states stressed that the elimination of these non-competes would benefit business and the economy as a whole, since non-competes often restrict entrepreneurship and start-up activity.

They also argue that the rule will particularly improve conditions in the health care industry, because non-competes are widely used there and often restrict entry of health care workers into the employment market—thus inflating prices and decreasing wages. The states say that this trend has led to the industry becoming increasingly concentrated in fewer employers in the United States.

The FTC is currently seeking public comment on the proposed rule.