The FTC’s proposed noncompete ban could be a boon for lower-wage workers
The FTC’s proposed noncompete ban could be a boon for lower-wage workers
Last week, the Federal Trade Commission proposed a near-total ban on noncompete clauses. These agreements are designed to prevent workers from taking trade secrets over to the competition, but in practice, it can keep those workers from seeking better opportunities and higher pay.
Now, you might hear “noncompete” and think of high-up executives and software developers. But some of the lowest-paid workers in this economy are also bound by these agreements — think fast food workers and custodial staff.
Nearly a third of private sector businesses that responded to a survey from the Economic Policy Institute require all of their employees to sign noncompetes, including a quarter of respondents that mostly employ high school graduates.
“So it just is this surprisingly prevalent thing even among workers who are making very low wages,” said Heidi Shierholz with the EPI.
Noncompetes neutralize the best tool those workers have for securing higher pay, Shierholz said: their ability to shop around.
“It’s in the name, right?” she said. “And when employers aren’t competing with each other, then workers and consumers lose out.”
In sectors like fast food and retail, these agreements often function as cheap retention tools, per Andy Challenger with the staffing firm Challenger, Gray and Christmas.
“From the employer’s perspective, they would like to potentially reduce turnover,” he said.
But noncompetes hardly ever go to court, according to University of Maryland economist Evan Starr. “They tend to be enforced informally in exit interviews, in threatening letters to workers,” he said.
A few states, including California, have stripped noncompetes of any legal teeth; others have banned them for lower-paying positions.
But workers don’t always know that, Starr said. Sometimes just the threat of a lawsuit is enough.
“Low-wage workers generally don’t have the wherewithal to finance litigation even for a frivolous noncompete agreement,” he said.
If the FTC’s proposed ban goes through, Starr said those workers will have a lot more leverage.
As for their employers, he said there are alternatives — like nondisclosure agreements that protect sensitive information without limiting workers’ mobility.
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