One of Corporate America’s Favorite Tricks Comes Under Attack

Non-compete agreements prevent employees from working for a competitor of their company.

If you’re a worker who feels constrained by a non-compete agreement, relief may be on the way.

Non-compete agreements may prevent you from working for a competitor of your company or starting a business that would compete with your company.

Some workers say these rules discourage them from pursuing more desirable opportunities, keeping them tethered to their companies. The opportunities could be more desirable financially, professionally or emotionally.

The Federal Trade Commission (FTC) agrees with those who feel stifled. It proposed a rule Jan. 5 that would ban employers from imposing non-compete agreements on their workers.

“It’s a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses,” the FTC said in a statement announcing the proposal.

“By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.”

Non-Competes Aren’t Just for Execs

Employers mainly require non-compete agreements for senior workers, who may be privy to trade secrets. But now the requirements have filtered down to lower level workers.

“Companies use non-competes for workers across industries and job levels, from hairstylists and warehouse workers to doctors and business executives,” the FTC said “In many cases, employers use their outsized bargaining power to coerce workers into signing these contracts.”

Non-competes don’t just hurt the workers who must sign them, but also other companies that may want to hire them, the FTC said. The agreements “deprive businesses of a talent pool that they need to build and expand,” FTC Chair Lina Khan said in a statement.

As you might have guessed, plenty of businesses oppose the FTC proposal. The Chamber of Commerce said it may sue if the proposal becomes law.

‘Blatantly Unlawful,’ Chamber of Commerce Says

The proposal is “blatantly unlawful,” said Sean Heather, the Chamber’s senior vice president for international regulatory affairs and antitrust. “Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule. The Chamber is confident that this unlawful action will not stand.”

Further, “attempting to ban non-compete clauses in all employment circumstances overturns well-established state laws which have long governed their use,” he said.

It also “ignores the fact that, when appropriately used, non-compete agreements are an important tool in fostering innovation and preserving competition.”

The proposal is open to public comment for 60 days, and after that, the FTC will decide whether to implement it.

If you’re a worker who feels held down by a non-compete, you probably want the FTC to approval the rule. If you’re an executive at a company that benefits from non-competes, you probably want the opposite.

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