WASHINGTON, D.C. — The Federal Trade Commission (FTC), an independent agency of the U.S. government, aims to ban non-compete clauses in employment contracts.
According to the FTC, non-compete clauses limit an employee’s ability to find new work after leaving a job.
A non-compete clause is a provision found in some employment contracts that bars an employee from working for a competing company for a certain period after leaving their current job. Non-competes, as they are often called, can be used to protect employer trade secrets, confidential information, and customer relationships, by preventing former employees from sharing that information with a competitor.
In recent years, the FTC has called for a ban on non-compete clauses that could potentially prevent workers from leaving lower-paying jobs for better-paying ones.
The FTC says wages across the nation could rise by $300 billion per year if the proposed new rule is implemented.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina M. Khan. “Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
“Research shows that employers’ use of non-competes to restrict workers’ mobility significantly suppresses workers’ wages—even for those not subject to non-competes, or subject to non-competes that are unenforceable under state law,” said Elizabeth Wilkins, Director of the Office of Policy Planning. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”
The FTC’s new rule would make it illegal for an employer to:
- enter or attempt to enter a non-compete with a worker;
- maintain a non-compete with a worker; or
- represent to a worker, under certain circumstances, that the worker is subject to a non-compete.
The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing non-competes and actively inform workers that they are no longer in effect.
The proposed rule can be viewed by clicking the link here.
