What a Proposed Ban on Noncompete Clauses Could Mean for You and Every Business in the Country

Job hopping is a popular way to improve your career prospects and pay. Many people believe that it is the best way to advance in your career.
Noncompete clauses can sometimes be a hindrance. These contracts are designed to protect the investments that companies have made in their businesses and employees. It is estimated that more than 30 million workers in the United States are required to sign a noncompete clause before accepting a job.
The U.S. Federal Trade Commission has proposed a new rule that would ban the use of noncompete clauses in employee contracts. The agency said that such clauses suppress wages, hampers innovation and prevents entrepreneurs from starting new businesses.
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If you're looking to boost your income this year, experts say there are a few key moves you can make. One is to focus on paying down any credit card debt you may be carrying from month to month. Another is to make sure you're staying current on all your bills and payments. And finally, if you're looking for a new job or a raise at your current one, now may be a good time to start actively pursuing those goals.
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The proposed rule would require companies with existing noncompete agreements to cancel them and to inform current and past employees that they have been canceled. This would provide employees with more freedom to move between jobs, and would allow them to negotiate for better terms and conditions.
"This is a radical move by the federal government," said labor and employment attorney Michael Schmidt of Cozen O'Connor in New York. "They are doing this with very few exceptions, which makes it even more radical."
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The impact of the ruling will be felt by companies with employees who are governed by noncompetes, as well as companies looking to hire workers who are bound by noncompetes, said Benjamin Dryden, a partner at Foley & Lardner in Washington, D.C. who specializes in antitrust issues relating to labor and employment.
"This regulation will have an impact on nearly every business in the country," he said.
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"Noncompetes block workers from freely switching jobs, which can deprive them of higher wages and better working conditions," FTC Chair Lina Khan said in a statement. "This can also deprive businesses of a talent pool that they need to build and expand."
The FTC has noted that noncompetes are increasingly being used across a wide range of industries, affecting white-collar workers in fields such as finance and technology, as well as hairstylists, warehouse workers, doctors, and business executives.
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One report from the White House and U.S. Department of the Treasury found that a significant number of workers without a college degree are subject to noncompete agreements. This is especially true for those earning less than $40,000 per year.
A ban on non-compete clauses could boost wages by nearly $300 billion a year and narrow the pay gaps between white workers and minorities, as well as between men and women. This would give workers more freedom to move between jobs, and would allow them to negotiate for higher wages.
If this regulation is passed, it will create more competition between companies for workers, according to Najah Farley, senior staff attorney at the National Employment Law Project.
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According to Farley, employers have been taking advantage of the lack of laws and regulations governing employment agreements, and pushing these agreements onto workers of all income levels and job titles.
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"Noncompetes reduce wages and working conditions by preventing workers from advocating for or moving to a better job," she said.
"Noncompete agreements can be an important tool in promoting innovation and preserving competition," Sean Heather, the U.S. Chamber of Commerce's senior vice president for international regulatory affairs and antitrust, said in a statement.
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Heather said that an outright ban is "blatantly unlawful." She explained that Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.
Although the proposed regulation has not yet gone into effect, Schmidt cautioned that there are still several steps that need to be taken, including the “inevitable litigation” challenging the FTC’s authority.
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Schmidt said that the rulemaking process could take up to a year, or even longer if it gets tied up in the court system.
Farley advised that workers who have been impacted by noncompetes should submit comments to the FTC on the proposed rule.
The comment period is open through March 10 and the FTC will review each submission and make changes based on that feedback. According to the FTC, “The more people who submit comments, the better.”
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Schmidt advised that companies should take advantage of the FTC’s 60-day comment period and let their voices be heard. This is an important opportunity for companies to have a say in the regulations that will affect them, and they should make sure to make their voices heard.
Dryden stated that this is meant to be a "constructive process." If you think that this will have a negative impact on your business, then you should submit your thoughts and concerns to the FTC.
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He added that he would not be surprised if the FTC ends up scaling back this regulation.
Dryden said that there was clearly momentum building toward a federal ban on noncompete agreements. He noted that many states already have limitations on noncompete agreements and that it is not surprising that the federal government is testing a blanket ban under Section 5 of the FTC Act, which prohibits unfair methods of competition.
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Dryden cautioned that while it may be too early for businesses to take any drastic action, they should be aware of the potential risks involved.
Schmidt advised that organizations should use this as an opportunity to review how they are protecting their business. He noted that there may be other contracts, such as nondisclosure or nonsolicit agreements, that can accomplish the same goal.
"Even if the FTC rule doesn't survive, state and local governments are becoming more active," he said.
This trend of limitations and restrictions is likely to continue, whether it comes from state legislatures or state attorney generals.