What the proposed non-competition clause means for you

FTC proposes new rule prohibiting non-compete clauses

Job hopping is widely recognized as the best way to improve your career prospects and salary.

Sometimes non-competition clauses get in the way. These contracts are designed to protect the investments companies have made in their businesses and employees. That is appreciated more More than 30 million workers – or about 18% of the US workforce – must sign a contract before accepting a job.

Recently the US Federal Trade Commission proposed a new rule Ban the use of non-compete clauses in employee contracts, which depress wages, hamper innovation and prevent entrepreneurs from starting new businesses, the agency said.

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The proposed rule would also require companies with existing non-compete clauses to remove them and notify current and former employees that they have been terminated.

“That’s part of what makes this so radical,” said Michael Schmidt, an employment and labor law attorney at Cozen O’Connor in New York. Not only “that the federal government is taking this measure broadly, but practically without exception”.

As a result, the impact will be felt both by companies with employees bound by the non-compete clause and by companies looking to hire workers bound by non-compete clauses, said Benjamin Dryden, a partner at Foley & Lardner in Washington, D.C., of the specializes in antitrust issues related to labor and employment.

“This regulation will affect more or less every company in the country,” he said.

Non-competition clauses are increasingly being used across all sectors

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Non-competition clauses worsen wages and working conditions by eliminating one of the most effective ways workers can improve job quality – advocating for or moving to a better job.

Well Farley

Lead Counsel for the National Employment Law Project

“Employers have taken advantage of the lack of law and regulation in this area to force these agreements on unsuspecting workers of all income levels and job titles,” Farley said.

“Non-compete obligations worsen wages and working conditions by eliminating one of the most effective ways workers can improve their job quality – advocating for or moving to a better job,” she said.

“When used appropriately, non-compete agreements are an important tool for promoting innovation and maintaining competition,” Sean Heather, senior vice president of international regulatory affairs and antitrust at the U.S. Chamber of Commerce, said in a statement.

An outright ban is “manifestly unlawful,” Heather said. “Congress has never given the FTC anywhere near the authority it would need to promulgate such a competition rule.”

Several steps are still needed before the proposed regulation becomes effective, including the “inevitable litigation” challenging the FTC’s authority, Schmidt warned.

That rulemaking process could take up to a year or even longer if bound in the court system, Schmidt said.

What employees should do now

Thomas Barwick | Getty Images

Workers affected by non-competition clauses should do so make comments to the FTC about the proposed rule, Farley advised.

The comment period is March 10, and the FTC will review each submission and make changes based on that feedback. “The more people submit comments, the better,” she said.

What employers should do now

Companies should also take advantage of the FTC’s 60-day comment period and “raise your voice,” Schmidt advised.

This is meant to be a “constructive process,” Dryden said. “If you think this will harm your legitimate business, please send comments to the FTC explaining your thoughts.”

“I wouldn’t be surprised if the FTC scaled back this rule,” he added.

Still, “there was clearly momentum in that direction,” Dryden said. In fact, many states already have restrictions on non-competition clauses, and it’s not surprising that the federal government is testing a blanket ban under Section 5 of the FTC statute, which prohibits unfair practices in competition, he said.

https://www.cnbc.com/2023/01/11/what-the-proposed-ban-on-noncompete-clauses-means-for-you.html What the proposed non-competition clause means for you

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