A new federal rule—which gained the support of Attorney General Dana Nessel this week—could make it illegal for employers to force their employees into restrictive non-compete agreements.
LANSING—Michigan Attorney General Dana Nessel is rallying behind a proposed federal rule that would stop companies from forcing their workers into exploitative non-compete clauses in employment contracts—and the changes could provide a big boost for workers and the state’s economy.
In a letter sent to the Federal Trade Commission (FTC) this week, Nessel joined attorneys general from 18 other states in voicing support for a proposal from the Biden administration that would effectively void existing non-compete agreements, and make them illegal nationwide.
“Post-employment restrictions like these have an adverse effect on workers, especially low-wage workers and those who are part of the ‘gig economy’ and tend to change jobs often,” Nessel said in a statement announcing the letter on Thursday. “Non-compete statutes are also often misused for anti-competitive purposes that do not protect legitimate business interests.”
In January, the FTC proposed a new rule to prohibit the restrictive non-compete clauses, which effectively bar employees from working in the same field within a certain area or timeframe after leaving their job. Public comment on changes closed this week. If it survives a likely legal challenge, the new rule could take effect as soon as 180 days after the FTC approves it.
As many as 30 million Americans are estimated to be under a non-compete contract this year. State officials said up to 38% of Michigan’s workforce has also been bound by the agreements in the past—typically because employers insisted on them and employees didn’t negotiate.
The FTC estimates that banning non-competes would boost wages nationwide by $300 billion annually.
President Joe Biden’s administration has concluded that the clauses create an unfair method of competition that can depress worker wages, lead to racial and gender inequality in the workplace, and create legal hurdles for employees who want to advance their careers.
Business groups have long stood behind the clauses as a way to prevent trade secrets from being shared across industries. But Michigan workers opposed to non-compete clauses have contended that those contracts have effectively prevented them from getting other jobs and starting their own companies, and are even used in at workplaces with no trade secrets to be shared.
Nessel said that low- and middle-wage workers would benefit most from the proposed rule. The elimination of the clauses would also “benefit businesses and the economy as a whole,” because non-competes restrict the potential for new businesses, according to the joint letter.
The attorneys general also contended that eliminating non-compete clauses would be of particular benefit for the healthcare industry—which tends to be heavily concentrated among only a few employers by region, and can make it difficult for workers to navigate between jobs.
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