What is a Non-Compete Clause?
A non-compete agreement or clause is a legal provision in an employment contract specifying that an employee must not compete with their employer after the employment period is complete. Typically, the agreement will indicate how long the employee cannot work for a competitor after their employment ends.
Non-compete agreements typically prohibit employees from disclosing important information or secrets about their employment to others. The agreement will legally bind the current or past employee to specified terms and time limits. Employees who violate these agreements may be sued by their employer.
What is the FTC Proposing About Non-Compete Clauses?
The Federal Trade Commission (FTC) says that “regulation is needed to block a practice that has spread across the economy.” It issued a proposal to ban the use of non-compete clauses. Its reasoning is that non-compete clauses are an unfair method of competition and violate Section 5 of the Federal Trade Commission Act. According to the FTC, non-compete clauses affect one in five American workers. FTC Chair, Lina Khan, says that non-compete clauses restrict US workers from “freely switching jobs, lowering wages and undermining fair competition.”
What Happens if the FTC Adopts its Proposal to Eliminate Non-Compete Clauses?
If the FTC adopts the proposal to ban non-compete clauses, companies will have to notify their employees about the change and rescind any non-compete obligations. According to the FTC, the new rule could “increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.”
Who Does the FTC Non-Compete Proposal Apply to?
The new proposal would make it illegal for an employer to impose non-compete provisions on any workers, represent to a worker that they are subject to a non-compete clause, and enter into or attempt to enter into a non-compete agreement with an employee. Independent contractors and other individuals working for an employer are also covered by this proposal, whether or not they are paid.