Federal Trade Commission Chair Lina Khan visited Hartford Friday to speak with labor leaders, state lawmakers and worker advocates about her agency’s new ban on so-called “non-compete” language in job contracts.
The rule, finalized earlier this year, prohibits non-compete clauses, which are commonly used in a range of industries to restrict employees from going to work for another employer in the same field. The ban also renders most existing non-competes unenforceable — with exceptions for some senior executives — and employers have to notify workers that they can’t be enforced. The rule is slated to go into effect in early September, but legal challenges could block it.
But even if it successfully takes effect, there are some industries and employers that won’t be subject to the ban. State lawmakers and Connecticut’s Congressional delegation have proposed more comprehensive bans, but so far those efforts have fallen short.
Nonprofit organizations, including hospitals, don’t fall under the FTC’s jurisdiction. Khan said banks and transportation companies wouldn’t be covered either. “There will be a gap. And that’s where we believe state enforcers and others can also step in,” Khan said.
The FTC rule, when it goes into effect, “would create a floor,” Khan said. State laws could go beyond that.
Non-compete agreements originated as a way to prevent former employees from sharing sensitive and proprietary information — and they tended to be focused on high-level employees who had access to a company’s trade secrets.
“But they’ve really proliferated,” Khan said at Friday’s roundtable, which was held at the union headquarters of service workers’ union 32BJ SEIU. “As we started looking at this issue, you realize that we’re talking [about] fast food workers, security guards, janitors, gardeners, journalists, health care workers.”
According to the FTC, roughly 30 million American workers are now subject to non-compete agreements. The agency has argued that non-compete clauses stifle competition in the labor market and — as the practice has spread to a wider range of industries — the agreements have held down wages for workers who have little to no leverage to negotiate or leave for a higher salary.
The language varies by company and industry. It might prevent an employee from working for a competitor for a specified window of time. Some expire during a worker’s tenure, but many endure regardless of the length of employment, even if that worker gets laid off.
Critics of the ban argue that the FTC does not have the legal authority to implement its rule. Shortly after the FTC’s April announcement of the final rule, pro-business groups including the U.S. Chamber of Commerce sued to block it.
In a statement at the time, Chamber president and CEO Suzanne P. Clark called the ban “not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive.” Clark added, “This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy.”
The Chamber’s lawsuit was stayed in May to allow a similar complaint filed earlier by a tax services company to go forward. The Chamber has since intervened to join that lawsuit, and earlier this week it filed a brief asking the court to stay the non-compete ban’s effective date and issue a preliminary injunction.
“Depending upon what happens in [the courts], it’s really important to have state laws,” Terri Gerstein, director of Wagner Labor Initiative at New York University’s school of public service, said at Friday’s roundtable. “The FTC rule is such a powerful and important step, but I don’t think it obviates the need for action at the state level.”
Addressing the state lawmakers in the room — which included Sens. Jorge Cabrera, D-Hamden, and Jeff Gordon, R-Woodstock, as well as Reps. Manny Sanchez, D-New Britain, and Josh Elliot, D-Hamden — Khan offered her agency’s support.
“We do things like write letters supporting various types of legislation. We’ve even sent FTC staff to go testify,” she said. “We have a bunch of advocacy tools that we can also use to support state efforts, and so please don’t hesitate to reach out if there’s anything in that vein.”
U.S. Sens. Chris Murphy and Richard Blumenthal also attended Friday’s roundtable. Murphy pointed to federal legislation he introduced that seeks to limit non-compete clauses in employment contracts. He said that effort is ongoing.
“We continue to pursue the federal legislation. Our legislation is bipartisan and continues to pick up support on both sides of the aisle,” Murphy said. “Obviously, the sponsors of this legislation are very supportive of what the FTC is doing, but we want to buttress that with law that spans administrations.”
Murphy said the risk of FTC rulemaking is that a new presidential administration could reverse those regulations.
“Our law would be permanent,” he said.