WASHINGTON, D.C. – Attorney General Karl A. Racine today led a coalition of 19 Attorneys General urging the Federal Trade Commission (FTC) to help stop the harmful and excessive use of non-compete agreements in the workplace, particularly for low-wage workers. As the FTC considers whether to implement federal rules regarding non-compete agreements, the AG coalition submitted comments expressing concern with the widespread use of these agreements and how they drive down wages and job mobility for workers and raise prices while lowering product quality for consumers. The coalition urges the FTC to ramp up enforcement actions against unreasonable non-compete agreements, make new rules limiting use of these agreements for low-wage workers, and closely examine their impact on all workplaces.
“Non-compete agreements block low-wage workers from finding jobs that offer them better benefits and higher pay,” said AG Racine. “We are urging the FTC to crack down on these harmful contracts that give too much power to employers and deny fair competition in our marketplaces.”
A non-compete agreement is a provision in an employment contract that limits employees from taking a new job or starting their own business in the same industry within a geographic area for a certain period after leaving their current position. Today, nearly 25 percent of American workers are covered by non-compete agreements, and 53 percent of those covered by these agreements are hourly workers.
State AGs have investigated non-competes and have reached settlements prohibiting the use or enforcement of these non-competes to the benefit of their workers, including low-wage or food service workers. AGs, led by AG Racine, have also previously submitted a comment to the FTC raising concerns that non-compete agreements could potentially violate antitrust laws and urging further review by the FTC.
In January 2019, the FTC held a public workshop to examine whether the agency should consider restricting the use of non-compete agreements in employment contracts. To aid their continuing analysis, the FTC posed several questions about these agreements to the public.
In their comment letter to the FTC, the AGs argue that non-compete agreements:
- Harm workers by restricting job mobility and depressing wages: Non-compete agreements typically stop workers from seeking different jobs—potentially offering higher pay and better benefits—without relocating or switching industries. Because workers cannot easily change jobs, companies do not have to compete to attract or retain them. This depresses wages and lowers the quality of benefits companies offer. In states that limit these restrictive agreements, workers have benefitted. For example, when Oregon banned non-compete agreements for low wage workers, hourly wages rose by about 6 percent and job mobility increased by 12-18 percent.
- Harm consumers by stifling entrepreneurship, innovation and price competition: Workers bound by non-compete agreements cannot use their skills to start their own businesses, and businesses cannot expand into new markets if they do not have access to workers in those markets. This lack of competition within industries means that consumers are cut off from innovative new products and services and are forced to pay higher prices for lower-quality products than they otherwise would.
- Are overused by employers and unjustified for low-wage workers: The state coalition argues that the use of non-compete agreements has become unnecessarily widespread. The AGs note that traditional justifications employers provide for using these restrictive agreements, such as protecting trade secrets or ensuring return on investments in employee training, are not persuasive, particularly for low-wage or hourly workers. Low-wage workers rarely if ever have access to trade secrets, are not intensively trained, and are unable to freely negotiate their contracts.
The AGs urge the FTC to identify non-compete agreements for low-wage workers as a form of unfair competition and, for the first time, to make rules that would limit the circumstances in which these agreements can be used. They also encourage the FTC to begin fighting the abusive use of non-compete agreements immediately through enforcement actions, including in collaboration with Attorneys General, and public education, and to continue studying the impact of these agreements in all workplaces.
A copy of the comment submitted to the FTC is available here: https://oag.dc.gov/sites/default/files/2020-03/FTC-Comment-Letter-Non-Compete-Clauses-Workplace.pdf
The comment was led by the Attorneys General of the District of Columbia, Maryland and Minnesota, and joined by the Attorneys General of California, Delaware, Hawaii, Illinois, Iowa, Maine, Massachusetts, Nevada, New Jersey, New Mexico, New York, Pennsylvania, Puerto Rico, Rhode Island, Virginia and Washington.
OAG’s Increased Efforts to Protect Workers
In 2017, with support of the Council of the District of Columbia, OAG gained independent authority to investigate and bring wage theft cases, and to increase penalties on employers who violate the District’s wage and hour laws. Since then, OAG has launched more than 30 investigations into wage theft and payroll fraud, OAG has taken legal action against a home health care provider, KFC franchises, a cell phone retailer, a cafe chain, multiple construction companies, and other businesses that harmed District workers. AG Racine also recently testified before Congress and highlighted findings from an OAG report about how worker misclassification hurts workers, undercuts law-abiding businesses, and cheats taxpayers. OAG staff has also testified before the Council in support of legislation that would ban the use of non-competes for low-wage and middle-wage workers in the District.
Resources for Workers
Workers can learn more about their rights under District law at: https://oag.dc.gov/workers-rights
Workers who have experienced wage theft or other wage and hour violations can contact OAG by phone at (202) 727-3400 or by email at firstname.lastname@example.org .