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Democratic Senators Urge Pandemic Crackdown on Noncompete Pacts

July 28, 2020, 9:53 PM

Two Democratic senators want the Federal Trade Commission to take emergency action to limit employers’ enforcement of noncompete agreements during and after the Covid-19 pandemic, saying the public health emergency has “exacerbated” problems with such arrangements.

Sens. Chris Murphy (D-Conn.) and Elizabeth Warren (D-Mass.) also faulted the FTC for not advancing a rulemaking following a January workshop held to consider a possible rule restricting use of noncompete agreements, which hinder a worker’s ability to find employment in a particular industry or geographic market.

Allowing enforcement of such contracts to continue during the pandemic creates additional challenges for workers in a labor market where between 20 million and 30 million people have filed for unemployment, the senators said in a letter to the agency.

“In this historically weak labor market, noncompete agreements become even more poisonous, leaving millions of workers who have lost jobs due to the pandemic unable to seek employment elsewhere, and potentially unable to start their own company after the crisis subsides,” the senators said.

Their letter, which was sent to the agency last week but hasn’t been reported publicly, added that noncompete agreements in the health-care sector “pose a risk to public health.”

The FTC extended public comment on a potential rulemaking after the January session, with a deadline of March 11. The agency is reviewing comments and “considering next steps,” agency spokeswoman Betsy Lordan told Bloomberg Law.

While the agency hasn’t advanced a proposal, it released a joint statement with the Department of Justice in April that warned employers against using “anticompetitive noncompete agreements” and threatened enforcement action. The senators’ letter asked the FTC to provide details of any enforcement actions it has taken since then.

All FTC investigations are non-public unless the commission announces a complaint, Lordan said in her emailed response.

“The FTC has been concerned for some time that by limiting the ability of an employee to join or start a competing firm after a job separation, non competes could potentially cause harm to workers,” Lordan added.

Noncompete agreements initially emerged as a way to prevent theft of intellectual property and trade secrets by businesses hiring top talent away from competitors. But they have become increasingly common in recent years as employers, such as fast food restaurants, have added them to employment contracts for low-wage jobs.

Greater political attention has followed, with lawmakers from both parties arguing that these contracts prevent employees from finding higher paying jobs. Multiple legislative proposals to curtail use of these agreements have been introduced in Congress over the past few years.

Murphy and Sen. Todd Young (R-Ind.) are pushing the Workforce Mobility Act (S.2614), which would limit use of noncompete agreements to circumstances involving dissolution of a business partnership or sale of a business. Sen. Marco Rubio (R-Fla.) introduced the Freedom to Compete Act (S. 124) which would protect low-wage workers from having to sign noncompete pacts.

With assistance from Cheryl Bolen

To contact the reporter on this story: Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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