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President Joe Biden signing the Executive Order on Promoting Competition in the American Economy. Photo credit: Alex Wong/Getty Images
President Joe Biden signing the Executive Order on Promoting Competition in the American Economy. Photo credit: Alex Wong/Getty Images

The FTC wants to ban non-compete agreements

The proposed rule would get rid of the contract clause that can stifle workers’ professional growth.

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The Federal Trade Commission (FTC) has proposed a ban on non-compete agreements, which was a campaign promise of President Joe Biden. 

Non-compete agreements are a contract clause that prevents people from working at a competitor company or starting their own companies in the same field for a period of time after they leave their employer. Most can last anywhere from six months to two years.

If a person breaks the agreement, it could result in them getting sued by their former employer.

They’re supposed to help keep a company’s intellectual property and trade secrets safe, but often ends up affecting workers in lower wage sectors more. 

President Biden said, “At least one in three businesses require their workers to sign a non-compete agreement. These aren’t just high-paid executives or scientists who hold secret formulas for Coca-Cola so Pepsi can’t get their hands on it.”

It’s estimated that one in five workers in the U.S. have signed a non-compete agreement. This accounts for around 30 million people. 

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy. Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” said FTC Chair Lina M. Khan.

“By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition,” she added. 

The FTC’s proposed ban would make it illegal to do the following as an employer:

  • Enter or attempt to enter into a non-compete with an employee
  • Maintain one with an employee
  • Represent to an employee that under certain circumstances that they are subject to a non-compete agreement

This rule would apply to paid and unpaid employees, as well as independent contractors. Employers would be required to annul existing agreements and tell employees that they’re no longer active. 

Complete vs. partial ban

There are already several states that have complete or partial bans on non-compete agreements. California and North Dakota have a complete ban, while Maryland and New Hampshire have a ban for low-wage workers. Experts have debated how well a complete ban would work. 

Sean Heather, U.S. Chamber of Commerce senior vice president for International Regulatory Affairs and Antitrust, called the proposed rule unlawful. 

“Attempting to ban non-compete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition,” said Heather. 

Those for the ban have concentrated more on how it would affect low-wage workers, rather than those who hold company secrets.

NPR spoke with Najah Farley, senior staff attorney at the National Employment Law Project. She explained that for low-wage workers, the only way for them to make more money is by taking new jobs in their field. These same workers don’t have the means to fight the lawsuit they might face by violating the agreement, but also stand to lose out on money if they abide by it. 

“If you're in a situation where you can't get another job in your industry, or you can't get another job in your vicinity, you're obviously going to be limited in your ability to raise your compensation," Farley said.

In a third camp are those in favor of a partial ban. Kevin Vozar, senior director of business development and owner relations at Cabins For You, told NPR, “I would not agree with a blanket — you know, getting rid of all non-competes nationwide for all industry spaces. I think that's being a little short-sighted. I do believe there is room for non-competes in a very limited spectrum."

This would allow companies to enforce non-competes with higher ups, while not penalizing anyone else who wants to move jobs in their field. 

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