Warren slams legal challenges to FTC noncompete ban
As the FTC noncompete ban faces legal challenges, some in Congress including Sen. Elizabeth Warren are supporting the FTC's authority to create such a rule.
Sen. Elizabeth Warren (D-Mass.) voiced her support for the Federal Trade Commission's ban on noncompete agreements and said she believes ongoing legal efforts to roll back the rule are wrong.
The ban, which is set to take effect Sept. 4, has so far faced legal challenges in Texas and Pennsylvania. While the Pennsylvania judge upheld the rule, the Texas judge decided to issue a preliminary injunction against the rule and will make a final decision by the end of August. As the FTC noncompete ban faces court challenges, it's also under scrutiny in Congress. Rep. Gary Palmer (R-Ala.) introduced a Congressional Review Act resolution July 11 seeking to overturn the rule.
Warren described noncompete clauses as unfair, un-American and anticompetitive. She said such agreements suppress wages, prevent worker mobility and "keep workers in dead-end jobs with no hope of moving up." Warren spoke during a hearing held by the Senate Subcommittee on Economic Policy that focused on the benefits of the FTC's noncompete ban.
"With this rule, the FTC is doing exactly what Congress authorized it to do: Prohibiting unfair methods of competition," said Warren, who chairs the subcommittee.
Negative effects of noncompete agreements
Studies show that 1 in 5 workers is subject to a noncompete agreement, a number that without a ban would likely continue to rise, said Heidi Shierholz, president of the Economic Policy Institute. Shierholz spoke as a witness during the hearing.
With this rule, the FTC is doing exactly what Congress authorized it to do: Prohibiting unfair methods of competition.
Sen. Elizabeth Warren
Shierholz said preventing employees from leaving through noncompete agreements reduces new business formation and dynamism within the economy. She agreed with Warren that banning noncompete agreements protects fair competition, something the agency was "empowered and directed to do by the FTC Act."
Sen. John Kennedy (R-La.), ranking member of the Senate subcommittee, argued that both good and bad noncompete agreements exist. He said while noncompete agreements can be abused, they're not "inappropriate in all cases" and can be necessary to protect trade secrets and business information.
However, Shierholz said businesses don't need noncompete agreements to protect trade secrets. Intellectual property law provides businesses with significant legal protections for trade secrets, as well as tailored nondisclosure and nonsolicitation agreements, she said.
"Provisions like those that directly address what employees may and may not do with company secrets allow businesses to protect trade secrets without being such a blunt instrument that they harm competition by taking away workers' freedom to take another job at another firm or start another business if they leave their firm," Shierholz said.
Dr. R. James Toussaint, an orthopedic surgeon at the University of Florida, and Hayley Paige, a wedding dress designer, both testified during the hearing about their negative experiences with noncompete agreements.
Paige, who starred on the popular television show Say Yes to the Dress, said she signed an employee agreement that included a noncompete clause in 2011 that, nine years later, left her unable to practice her trade or use her birth name that was tied to her wedding dress designs.
"My journey took a harrowing turn when I faced the restrictions of a noncompete clause," she said. "This stifled my ability to work and took away what I loved doing most. It left me financially devasted and it shook my faith in the justice system."
Paige said to continue supporting innovation in the U.S., agreements like noncompetes should not be used to restrict employees from working.
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
