New FTC rule proposes ban of non-compete agreements

On Behalf of | Apr 24, 2023 | Business Law

The Federal Trade Commission (FTC) is proposing a rule to ban non-compete agreements between employers and employees, alleging that these agreements hurt competition and negatively impact labor mobility.

Its proposal also states that non-compete agreements reduce wages for workers, including those not bound by these clauses.

Within the proposal, the FTC specified that the rule would not apply to other types of restrictive covenants, such as non-disclosure and non-solicitation agreements.

What does this mean for employers?

If the rule goes into effect, employers must rescind all non-compete clauses from their employment contracts with employees and notify all workers that the clause is no longer valid.

This would be a significant change to existing law, and it is already making waves in the business community due to the potential implications that such a change could result in.

Businesses, especially large-scale businesses, benefit from these agreements because they can lock down sectors of the labor pool and minimize competition. On the other hand, these restrictive covenants make it harder for smaller businesses to enter the market and compete with larger companies.

What does this mean for employees?

The FTC argues that employers should do a better job at explaining what non-competes mean, and labor advocates argue that these clauses harm employees by locking them into the company they work for and making it challenging for them to take their talent elsewhere, particularly competitors. 

The proposal was open for public comments until April 19, 2023. The FTC promotes competition in the market, aiming to protect and educate consumers on antitrust issues.