Here's how the FTC proposal to end noncompete agreements could affect you
Whether you are an employer or employee, chances are you have, at some point in your career, had a noncompete agreement. In fact, about 20% of Americans, or 30 million workers, are bound by noncompete clauses in myriad industries. The intention, for many businesses, is to protect proprietary information or trade secrets and ensure the training they invest in an employee isn't used by an employee to start a business or jump to their competition. For many workers, noncompete clauses may limit their job mobility or ability to seek better compensation.
In its ongoing efforts to promote fair competition and protect consumers, the Federal Trade Commission (FTC) recently announced a proposed ban on noncompete clauses.
"The FTC is exploring the possibility that noncompete agreements may result in suppressed wages or serve as a barrier to entrepreneurship," explained attorney Brent Smith, who concentrates on employment and labor law. "This change could affect multiple industries and as many as one in five workers, so it could have enormous implications for hiring managers, entrepreneurs, business leaders and workers themselves."
The FTC estimates that banning noncompete agreements could increase annual workers' compensation by nearly $300 billion. The FTC also notes that noncompete clauses may violate Section 5 of the Federal Trade Commission Act because of their potential to stifle competition. One of the related issues is how current noncompete agreements may impact consumers, as less innovation and competition can drive up prices.
The FTC's proposed rule would make it illegal for employers to use noncompete agreements with workers and independent contractors, regardless of whether they’re compensated for their work.
"It would also require employers to rescind any noncompete agreements they have in place and inform workers they're no longer bound by the agreement," said Smith.
For now, the FTC is calling for public comments on the proposal through March 10 of this year. At that point, the FTC will review the comments and develop a final rule based on those comments and their further study of the issue.
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Workers often have far less leverage than an employer, and as a result, when they’re hired, they may feel compelled to sign noncompete clauses that prevent them from earning their worth, starting their own business, or taking advantage of better opportunities.
At the same time, businesses want and need to protect their proprietary information. And resistance to the rule under consideration could result in legal challenges and a potentially lengthy battle over worker and employer rights.
If you or your business feels caught in the middle as the FTC weighs action, it may be helpful to consult an attorney to explore your legal options sooner. An experienced employment and labor law attorney can help you know your rights and where the law currently stands related to your unique circumstances. Contact us to talk with an attorney about your legal rights related to noncompete clauses.