Labor Groups Petition U.S. FTC to Ban Non-Compete Clauses

(Bloomberg) -- The U.S. Federal Trade Commission finds itself under increasing pressure to ban non-compete clauses, with unions, advocacy groups and politicians complaining that the agreements hobble workers’ rights and fair competition.

The AFL-CIO, the Service Employees International Union, and Public Citizen, among other organizations, are urging the agency -- in a petition -- to issue a new rule prohibiting employers across industries from requiring that their workers sign agreements limiting them from going to work for a competitor.

The petition, which was spearheaded by the Washington-based antitrust advocacy group Open Markets Institute, cites estimates that one out of every five U.S. workers -- or about 30 million -- is bound by such an agreement. The non-compete agreements suppress employees’ ability to negotiate for raises, escape from unsafe or discriminatory workplaces, or start competing businesses of their own, according to the petition, which is being filed Wednesday.

“Many workers are signing on the dotted line and not really reading the fine print, because it’s not really up for negotiation anyway,” said Wayne State University law professor Sanjukta Paul, who is among a group of scholars that also signed the petition.

The petition named companies such as Amazon.com Inc., which it said required temporary warehouse workers to agree to broad non-compete clauses and fast-food chain Jimmy John’s Franchise LLC, which restricted new hires from working for any competing restaurant within three miles.

Senators Weigh In

The FTC, which has a mandate to enforce antitrust and consumer protection laws, should declare worker non-compete clauses to be an unfair method of competition and classify them as illegal under the FTC Act, the groups said in the petition. That would make companies that violate the rule liable and subject to FTC enforcement.

On Wednesday, seven Democratic U.S. senators are sending a letter to FTC Chairman Joseph Simons asking the agency to use its tools, including rule making, “to combat the scourge of non-compete clauses rigging our economy against workers.”

While the senators stop short of joining the call for a total ban on non-competes, their letter praises the advocates’ and academics’ petition as “thoughtful and well-considered,” and asks for an update within 30 days.

“It is not enough that the Federal Trade Commission shares our concerns about these actions,” the senators said in the letter, which was signed by Richard Blumenthal of Connecticut and colleagues, including the presidential candidates Elizabeth Warren of Massachusetts and Amy Klobuchar of Minnesota. “It must act decisively to address them.”

The FTC declined to comment.

Anti-competitive practices by employers have become an increasing focus for labor advocates and public officials, including state attorneys general who over the past year have secured agreements from fast food firms to stop prohibiting their franchisees from hiring away each other’s workers. Silicon Valley companies including Apple Inc., Alphabet Inc.’s Google, Adobe Inc., and Intel Corp. agreed to a $415 million settlement in 2015 over allegations they conspired to avoid hiring away each other’s staffs.

An Amazon spokeswoman said the company removed non-compete clauses for hourly employees in 2015. A Jimmy John’s spokesperson said it doesn’t use non-competes for employees in its own stores or encourage its franchisees to use them.

‘Other Ways’

“The harms are ubiquitous and serious, and on the other hand the justifications that have been offered for this don’t really hold water,” said Open Markets’ legal director Sandeep Vaheesan in an interview. “If employers are concerned about employee departures they have other ways of keeping them -- the most obvious one is paying higher salaries, offering better benefits and giving workers more responsibility.”

The FTC has come under pressure from lawmakers and consumer groups to take a more aggressive approach to antitrust enforcement. Prohibiting non-competes would be an excellent way for the FTC “to show that they are still effective and relevant, and can actually do things to help ordinary Americans,” Vaheesan said.

FTC Commissioner Rohit Chopra, one of the five-member commission’s two Democratic members, said at a hearing last September that by issuing a rule regulating non-compete agreements, the FTC could “remove any ambiguity as to when non-compete agreements are permissible or not.”

To contact the reporter on this story: Josh Eidelson in Washington at jeidelson@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, John Harney

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