What the proposed non-competition clause means for you
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-compete clauses prevent workers from freely moving jobs, deprive them of higher wages and better working conditions, and deprive companies of a talent pool they need to build and expand,” FTC Chair Lina Khan said in a statement.
In many cases, non-compete clauses affect employees in fields like finance and technology, but they are increasingly being used across a wide range of industries, according to the FTC, “from hairdressers and warehouse workers to doctors and executives.”
A report by the White House and the US Treasury Department found that 15% of workers without a college degree are also subject to a non-compete obligation 14% of workers earn less than $40,000.
A ban could increase wages by nearly $300 billion a year and narrow the wage gap between white workers and minorities, and between men and women.
If this regulation is passed, “it will open up more competition between companies for workers,” said Najah Farley, lead counsel for the National Employment Law Project.
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
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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.
“It’s too early for companies to take drastic action, but companies should be aware that this poses a real risk,” Dryden said.
“For now, take this as a reason to look as an organization at how you’re protecting your business,” advised Schmidt. There may be other contracts such as B. Non-disclosure or non-solicitation agreements that can achieve the same goal.
“Even if this FTC rule ultimately does not survive, state and local governments are becoming more active,” he said.
“We will continue to see this trend of restrictions and restrictions, whether by state legislatures or by attorneys general.”
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
