The politics surrounding the FTC’s ban on noncompete agreements

ABILENE, Texas (KTAB/KRBC) — In this week’s Big Country Politics, Taylor Giorno, a business and lobbying reporter for thehill.com, discusses the politics surrounding the Federal Trade Commission’s (FTC) decision to ban noncompete agreements.

FTC bans noncompete agreements with new rule

The Federal Trade Commission voted three to two to ban noncompete agreements. At its root, these agreements prevent employees from working with competitors or starting competing businesses. The Commission estimates that around 30 million people, or 18% of the US workforce, are currently bound by such agreements.

“It retroactively tells employers, ‘ Hey, you have to throw out these existing noncompete agreements and let current and former employees know that they’re not going to be enforcing them anymore. ‘ In an update from the original rule that was proposed in January 2023, however, the final rule carved out an exemption for some senior executives, who are still going to be subject to those noncompete agreements,” Giorno said.

The new FTC rule, which will ban all current and future noncompete agreements, is supposed to go into effect in 120 days but is facing some legal challenges.

“Big business groups have already come out in force against this rule. So specifically, on Wednesday morning, the US Chamber of Commerce, which is this massive pro-business lobbying group in Washington, DC, the Business Roundtable, and a few other business groups actually filed a lawsuit suing the FTC. And its chair, Lena Khan, a Biden appointee, argued that the agency overstepped its authority and is trying to block the rule from going into effect. So that challenge, and any subsequent ones that come up, are likely going to extend the runway for implementing this actual rule,” Giorno explained.

Business groups sue FTC over noncompete ban

Giorno mentioned that she is unsurprised by the challenge, having seen similar situations before.

“This is President Biden’s bread and butter. He really loves to cast himself as the most pro-union president in history on the side of workers. Back in the fall, we saw him on the picket line of the United Auto Workers Union strikes when they were striking getting into the big three; his State of the Union as well, earlier this year. His administration rolled out a whole agenda where he was going after price gouging; his administration has really focused on how they’re cracking down on junk fees. The Consumer Financial Protection Bureau issued a rule last month that would cap credit card late fees at $8, which is about a 75% cut from their average of $32,” Giorno said. “On the flip side of that, the challenge from the chamber and these other business groups is also to be expected. The chamber also filed a lawsuit to block the CFPB rule capping credit card late fees last month, and they signaled ahead of this final rule that they were going to do the same thing.”

Chamber, business groups sue FTC to block noncompete ban

She foresees President Biden potentially using this as a way to separate himself from the Republican party in the November election.

“He’s going to go back to his track record as it relates to what his administration has done on these noncompete agreements, on the credit card legacy, and on price gouging, really using that as a stark dichotomy to President Trump, former President Trump, the presumed Republican nominee,” Giorno said. “That’s going to be super important because right now, Biden is not polling well when it comes to his handling of the economy. Voters really see former President Trump, according to a CBS News poll that was put out last month, as somebody who was doing a better job at handling the economy. So Biden really wants to cast himself as, hey, I’m somebody who’s going to be there helping workers fighting for you.”

This is interesting to Giorno, as Congress has not passed a bill to give FTC the authority to ban noncompete agreements, and there have been some bipartisan bills regarding noncompetes.

“I think this will be sort of a talking point that Biden will be bringing up on the campaign trail; as I mentioned, I don’t know if some of these court cases will get resolved before then. But even though there is some bipartisan agreement on limiting noncompetes, not just at the congressional level, even the Republican commissioners who voted against banning noncompete agreements said we don’t support noncompete agreements, carte blanche, but I think that you’ll see in the presidential election, that maybe Biden is going to try to draw a harder starker line than even maybe how some Republicans and Democrats are split on this issue of non-compete agreements,” Giorno explained.

What to know about the FTC ban on noncompete agreements

If non-compete agreements are prohibited, the healthcare industry and tech companies will be impacted.

“Coming out of the pandemic, we saw that industry in such upheaval; there was high demand for labor, but also a lot of people that were hemmed in by these noncompete agreements, you know, it makes it a lot harder for them to leave a job to seek better pay better working conditions, this would have a pretty big impact, particularly in the for-profit, healthcare space,” Giorno said. “A lot of tech startups will have these noncompete agreements. And it’s not just in California; we think of California and Silicon Valley as the bastion of this, but these Texas tech startups are all over the country. Banning these noncompete agreements kind of opens some of these companies up to bringing people on board; you have this innovative idea. And there’s a risk that that an employee that you bring on that you’re trying to help build a business with leaves and goes out elsewhere, or worse, maybe starts a business that’s going to compete with this new innovative business you’ve come up with.”

While many individuals would benefit from the ruling, the business community argues against it for reasons such as protecting trade secrets.

“A lot of people in the business community have said this is bad; it’s not going to protect our trade secrets. We’re opening ourselves up to that information getting out there. There are other ways that companies can protect that information. A lot of lawyers have pointed out in the wake of this ruling that the rule does not ban confidentiality agreements or non-disclosure agreements,” Giorno said. “I think that, particularly in those spaces, you will probably see two things. One will be the increased use of those mechanisms to protect proprietary information. And companies, if the rule goes into effect, are going to have to compete for labor coming out of the pandemic; we saw this really hot labor market where companies were offering higher wages and better benefits. That is definitely a tool they may have to lean more on to attract the employees they want and get them to stay.”

How changes to ‘noncompete’ agreements and overtime could affect workers

In the broadcasting industry, this could mean more opportunities for journalists, but it could also bring more shifting from station to station.

“Viewers may be seeing their favorite anchor on one station on a Friday, and then they’ll tune into another station on a Monday and they’ll see that person has moved to a different broadcasting station. As you said, that is something that is much more common in print, particularly in a very saturated market like Washington, DC, where journalists move around. But I do think that if noncompetes are banned, you might see a little bit more moving around and shuffling in the broadcast market. Alternatively, you could see broadcast management starting to pay their top talent more, investing more in training them, and really giving them incentives to stay in their current job,” Giorno shared.

For the latest news, weather, sports, and streaming video, head to KTAB - BigCountryHomepage.com.