Hi Rulers! Welcome to the end of the week. I’m Gigi and I’ll be your host today. A bit about me: I’m a D.C. native but certified Ohio fan, my beverages of choice are an iced oat milk latte (or two) in the morning and a cup of Persian chai to close out my day, and my tiny writing companion is a 10-year-old cat named Baz. Enough about me. Let’s get to it! The good news: You’ve finally found a new, better paying job. The bad news: A noncompete clause in the contract you signed when you started your last gig means you can’t actually accept your dream offer — without the looming threat of a lawsuit. That’s the position that many workers subjected to noncompete agreements find themselves in. And research shows that women, particularly women of color, are disproportionately impacted by the restrictions of noncompetes, which often curtail their career growth opportunities and can put them into debt — or worse — if they’re found in breach of the agreements. In a historic rule finalized last month, the Federal Trade Commission banned most employee noncompete agreements, a move some experts say could increase career opportunities and wages for women and people of color of all genders. According to the FTC, roughly 30 million workers — 1 in 5 Americans — are subject to a noncompete clause that aims to stop them from moving to or creating a competitor company for a certain period of time or in a certain geographic region. Noncompetes can prevent a worker from moving on to a better-paying job or starting a new business, often keeping employees stuck in dead-end jobs, according to the FTC. Once in effect, the new rule will render an overwhelming majority of those agreements unenforceable, with the exception of senior executives who make up less than 0.75 percent of workers. The noncompete ban is expected to disproportionately benefit people from marginalized groups, particularly women. According to a 2021 study, enforcement of noncompete agreements reduced earnings for white women and non-white workers by twice as much as white men. Another 2019 study found that making the agreements unenforceable, as the new FTC rule is set to do, would lead to wage increases of 3.5 percent for women, compared to 1.5 percent for men. Cornell University Professor Matt Marx is hopeful that a successful rollout of the FTC’s rule will also help narrow the gender gap in entrepreneurship. Marx dug into 25 years’ worth of Census and IRS data across 25 states and Washington, D.C. He found “the effect of noncompetes on entrepreneurship is about 15 percent stronger for women.” Marx's research on noncompetes was published in 2021. Because of the gender pay gap, Marx says, women subject to noncompetes typically have less money in the bank than their male counterparts to defend themselves in a lawsuit. And research shows that women are less likely to take risks that would put them in a potential legal bind in the first place. By the same token, Marx thinks that the ban could help narrow the gender pay gap, as freedom from the restrictive agreements may boost the rate of job change among women and, in turn, boost their wages. After working with clients facing legal repercussions for breaching those agreements, Case Western University law professor Ayesha Bell Hardaway began studying the impact of noncompetes on low-wage Black workers. She came to the conclusion that noncompetes are unconstitutional. Two of Hardaway’s clients in particular, both Black, low-income single mothers, faced court judgments after leaving jobs where they were paid abysmally, according to Hardaway. “The reality that they were being asked to sign these agreements in exchange for a very mediocre compensation was baffling to me,” Hardaway says. Many end up in considerable debt trying to defend themselves in court or “ just sit out of the workforce entirely” until the noncompete agreement has lapsed, typically up to two years. To Hardaway, noncompetes are a breach of the 13th Amendment. “The choice of working involuntarily … or not working at all sounds a lot like slavery,” she says. While the noncompete ban could potentially remove that barrier for workers, it may not be smooth-sailing for the FTC’s new rule. The commission was immediately hit by several lawsuits, including from the U.S. Chamber of Commerce, challenging the rule on multiple fronts including alleged government overreach. In a statement released hours after the FTC voted on the rule, Chamber of Commerce President and CEO Suzanne P. Clark announced that the Chamber would sue the FTC to “block this unnecessary and unlawful rule.” “Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules. Noncompete agreements are either upheld or dismissed under well-established state laws governing their use,” Clark said in the statement. “Yet, today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.” Should one of the pending suits successfully block the rule’s implementation, individual states could potentially pass their own noncompete bans — some states like California and Minnesota have already banned the agreements and others like Massachusetts have placed heavy restrictions on their enforcement. Marx is concerned that state efforts at noncompete reform won't ultimately benefit workers. “I worry that there will be a lot of state by state efforts, but some will make it better for workers and some will make it harder,” Marx says, pointing to Georgia, which rolled back protections for workers facing noncompetes in 2010. Just last year, a bill banning noncompetes passed successfully through the New York Assembly but died on Gov. Kathy Hochul’s desk. Business groups opposed the measure, and Hochul, in vetoing the bill, said while she supports noncompete bans for low- and middle-income workers, she wanted to “strike the right balance” so that companies wouldn’t be hamstrung when recruiting top tier talent. Regardless of whether the rule is able to take effect, both Marx and Hardaway say the FTC’s move signified a major shift in the national discourse on noncompetes. Of the over 26,000 public comments issued when the rule was first proposed, over 25,000 were supportive — a “sea change” in the public perception of noncompetes, according to Marx. Referencing the persistent racial and gender wage gaps, Hardaway notes, “we’ve got a long way to go, but removing this unnecessary, this unjust impediment can be helpful.”
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