Employees reluctant to look for new gigs due to noncompete clauses have the FTC in their corner.
On Thursday, the agency proposed banning both new and existing noncompetes nationwide. The new rules would not apply to standard NDAs, nor noncompetes between those buying and selling companies.
What’s a noncompete clause?
A contract that prevents someone from working for or starting a competing business if they leave their current job, voluntarily or not. Usually, they expire after a period of time (e.g. one year) and come with geographic boundaries.
Some states, including California and North Dakota, have already banned them. The FTC argues that they trap workers and decrease competition, resulting in lower wages marketwide and a lack of new business, entrepreneurship, and innovation.
Per the FTC:
- Noncompetes affect ~20% of US workers.
- Banning them could increase US workers’ earnings by $250B-$296B annually.
Is anyone opposed to banning them?
The US Chamber of Commerce doubts that the FTC has the authority to enact such a broad ban and is considering a lawsuit, per The Wall Street Journal.
And proponents of noncompetes say:
- They protect confidential company and customer info.
- They encourage employers to invest in employees’ education.
But the FTC asserts that noncompetes have gone too far, encompassing lower-wage workers who lack access to such intel.
Earlier this week, it announced a crackdown on a few noncompetes, including one that prohibits security guards, who make near minimum wage, from working at other security firms within a 100-mile radius, else pay $100k.
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