April 23 (UPI) — The Federal Trade Commission said it will vote on Tuesday on a new rule that could ban non-compete clauses in contracts.
The FTC, after receiving 26,000 messages during a public comment period, appears to be poised to outlaw the clauses, calling them unfair to workers by preventing them from using their skills freely.
“The proposed final rule being considered would generally prevent employers from using non-compete clauses,” the FTC said in a statement. “As the notice of Proposed Rulemaking explained, non-competes are a widespread and often exploitative practice that suppresses wages, hampers innovation and blocks entrepreneurs from starting new businesses.”
Companies have used non-compete clauses in contracts for decades to prevent workers and executives from jumping from their company to a competing company or that worker from starting up their own company to compete against them.
An FTC fact sheet on the proposed rule change said employers have numerous other ways to protect trade secrets and other key investments, which have been some of the reasons for their support for noncompete clauses.
“Employers often justify using non-competes with their workers to protect confidential information and to get the most out of their investments with their investments in training and capital,” the fact sheet said.
“But the record to date shows that in California, North Dakota and Oklahoma — three states in which employers can’t enforce noncompete clauses – industries that depend on trade secrets and other key investments have still flourished. This shows that employers have other ways to protect these investments.”
The FTC said it estimates that the banning of noncompete clauses would increase the earnings of workers earnings by almost $300 billion annually, save consumers close to $148 billion a year on healthcare costs and double the number of companies started by former workers in the same industry.
The rule was initially introduced in January 2023 as FTC Chair Lina Khan said the freedom to change jobs “is core to economic liberty and to a competitive, thriving economy.”
The U.S. Chamber of Commerce wrote a comment opposing the ban, arguing non-compete clauses help to encourage companies to invest additional resources in training employees without concern that they will take that knowledge to a competitor.
“Such a proposal fails to recognize that non-compete agreements can serve vital procompetitive business and individual interests — such as protecting investments in research and development, promoting workforce training, and reducing free-riding — that cannot be adequately protected through other mechanisms such as trade-secret suits or non-disclosure agreements,” it said.
