Handcuffs for 20% of Our Workforce

Handcuffs for 20% of Our Workforce

We Call them Non-Compete Agreements

“Noncompetes harm competition in U.S. labor markets by blocking workers from pursuing better opportunities and by preventing employers from hiring the best available talent.” 

January 5th FTC Announcement

There are viable alternatives under state and federal law to protect trade secrets, but we have built an new employment system in much of the country to restrict employees from working for competing companies when they leave their existing employers: the use of non-compete clauses in employment agreements. And as the above title suggests, the practice is pervasive and has become downright abusive. While a few states have banned or placed limits on the practice, the use of non-competes at all levels of employment remains widespread.

You may have noticed a major tilt in judicial (particularly the US Supreme Court) and administrative rulings during the Trump administration, and thereafter where Trump appointees still hold position of power, favoring minority populist beliefs. Including allowing big business to restrict their workers when they move on, for whatever reason. While the Biden administration, via the Federal Trade Commission, is focused on ending some of these abuses, there is a real question on whether or not the FTC has the legal authority to restrict past and future non-compete agreements.

Leveling the playing field and encouraging competition seem like bedrock principles of American business, those with power – whether via campaign contributions or simple raw economic mega-power – are used to getting their way in Congress and so many state legislatures. There’s a reason why fund managers are taxed at vastly more favorable rates than their administrative assistants. Those “accelerated depreciation” benefits embedded in the Internal Revenue Code don’t really reduce taxes for all but the richest in the land, and the current GOP House majority’s efforts to repeal recent upgrades to the IRS budget are obviously not focused on 90% of American taxpayers. The benefits and exemptions accorded to those with true economic power is absurdly disproportionate. Call it corporate socialism if you will.

In the January 9th edition of the Journal of the American Bar Association (disclosure: I am an ABA member), Debra Cassens Weiss addresses the issues surrounding a proposed effort by the FTC to ban or limit the use of non-competes in United States: “The proposed rule would ban new noncompete agreements and require rescission of existing noncompete contracts. Generally, the rule would not ban other types of employment restrictions, unless they are so broad that they function as a noncompete agreement. The rule would also include an exemption for noncompete clauses between the seller and buyer of a business.

“The FTC is seeking comment on the proposed rule, including on these topics:

• Whether franchisees should be subject to the rule

• Whether noncompetes for senior executives should be exempted from the rule or subject to a rebuttable presumption of unlawfulness

• Whether low- and high-wage workers should be treated differently

“The FTC’s power to adopt the law will likely be challenged in court, according to Bloomberg Law. During a press briefing, Lina Khan, chair of the FTC, cited a 1975 decision by the U.S. Court of Appeals for the District of Columbia Circuit, National Petroleum Refiners Association v. FTC, which held that the commission may issue rules related to unfair competition.

“Richard Pierce, a professor at the George Washington University Law School, told Bloomberg Law that the decision is a weak justification… ‘It’s highly unlikely that it would be upheld by the Supreme Court today,’ Pierce said. ‘I continue to be extremely skeptical that FTC has power to use notice and comment rulemaking to define an unfair method of competition.’” Indeed, given the current configuration of the US Supreme Court, knowing that any restrictive rulemaking by the FTC in this arena would instantly be challenged in court, the ability of the FTC to act against non-competes is questionable. With Congress mired in gridlock, seeing any bills against non-competes pass is little more than a hope and a prayer. Cassen continues:

“Bloomberg Law also cited a statement by Sean Heather, a senior vice president at the U.S. Chamber of Commerce. Heather said the rule would not survive because ‘Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.’… One obstacle is the ‘major questions’ doctrine, which holds that courts should not defer to agency statutory interpretations on questions of ‘vast economic or political significance.’

“‘We could see a major-questions doctrine challenge arguing that whether noncompetes are good competition policy is something to be decided by Congress, not an agency,’ said Catherine Fisk, a professor at the University of California at Berkeley School of Law, in an interview with Bloomberg Law… Clifford Atlas, a principal at the law firm Jackson Lewis, told Law.com that the FTC was ‘swinging for the fences,’ and there would ‘absolutely’ be legal challenge to the rule.”

The GOP has openly abandoned maintaining a political platform, now focused on culture wars, finding blame and reversing existing laws and precedents. The notion of solving this nation’s problems seems to have left the building. As the disarray in selecting the House Speaker illustrates, we have a congressional configuration that is thoroughly incapable of governing, and if there are to be any changes championed by this populist GOP congressional contingent, it is only like to favor the rich or those with evangelically-supported national beliefs. As for most of us, don’t hold your breath for any positive movement on your behalf.

I’m Peter Dekom, and in so many ways, large and small, our elected representatives and their appointees are slowly chipping away at a legal system that is supposed to treat all of us equally to be replaced with some very limited and radical minority views.