The Federal Trade Commission’s (FTC) ban this week on non-compete agreements has grabbed the attention of business leaders and companies like Amazon (NASDAQ:AMZN), which are now moving toward a legal fight. The reason for the fight is the FTC issued a new rule that opens the door for millions of workers to upgrade to a different job at another employer in the same field. Many workers have been blocked from changing jobs by non-compete agreements. The FTC essentially put a broad ban on non-competes.
Just a day following the FTC ban, business groups filed a lawsuit to block its enforcement. The legal complaint, filed in U.S. District Court in Texas, argues that noncompetes “benefit employers and workers alike.” It asserts that employers are protecting their workforce, investments, and privileged information. As for employees, the complaint claims they benefit from training opportunities, access to more information, and “an opportunity to bargain for higher pay.” For its part, the FTC sees non-compete clauses as hindrances to fair competition and wage growth.
Why Companies are Lawyering-Up
Companies like Amazon, which have a sizable workforce with varying wage levels, are among those pushing back against the FTC’s rule. Their argument centers on the notion that non-compete agreements encourage them to invest in employee training and skill development. Additionally, they contend that these agreements safeguard sensitive company information and support ongoing research and development initiatives.
Amazon’s strict enforcement of non-compete clauses, even for temporary warehouse workers, shows how these agreements can affect employee mobility. However, recent research from the University of Maryland suggests a different story. Professor Evan Starr’s studies indicate that when states banned non-compete agreements, wages went up by 3-4%, and job turnover increased by 11-17%.
The Potential Impact on Employment Costs
The FTC argues that the ban will ultimately benefit companies by boosting worker morale and potentially reducing turnover. More importantly, they estimate the ban will raise employee wages by a staggering $400 billion over ten years, with an average worker gaining $524 annually. This could lead to a gradual increase in employment costs for companies like Amazon that rely heavily on lower-wage workers.
Where We’re at Now
The plaintiffs are challenging the FTC’s authority to implement the ban; expectations are for a lengthy legal battle. The potential impact on companies like Amazon and the broader economy will likely be a key point of contention. This alleged burden on companies is where investors are focused. While the ban might initially lead to rising employment costs, the potential for increased worker productivity and loyalty could offer long-term benefits for companies that adapt to the new order.
Key Takeaway
The FTC’s non-compete ban is a significant change with potential consequences for both workers and companies. While companies like Amazon express concerns about protecting investments and information, the potential for wage growth and a more competitive labor market highlights the potential benefits for workers. The legal fight and the rule’s actual impact on employment costs remain to be seen, but one thing is certain: the way companies approach worker training, development, and retention is likely to evolve in the coming years.
