A noncompete clause is a contractual clause that employees may be required to sign to prohibit them from leaving their job to work for a competitor. Companies see this as a way to protect confidential information and avoid losing customers. Employees may even be told that they can’t start their own businesses if those businesses are going to be direct competition to their previous employer.
However, the Federal Trade Commission (FTC) has been considering a national ban on noncompete agreements. Noncompetes were already controversial, and, depending upon the state in which the employee worked, courts would not always enforce them. But the FTC would now like to ban them entirely.
Why is this being done?
The FTC believes that this ban on noncompetes would be beneficial to workers. They view noncompete clauses as harmful to competition in the workplace. In fact, they say that workers are losing out on about $300 billion in annual wages just because of noncompete contracts that they have signed.
After all, a noncompete agreement can be very limiting for a worker. If the company they are at doesn’t give them a raise, the only way to increase their pay may be to take a similar position with another company. But if they signed a noncompete agreement, they are legally prohibited from taking another job, and so their wages are stagnant. The FTC ban would put an end to this practice.
This ban is not in place yet but is being considered by the FTC. It’s important for both employers and employees to understand how it could impact their rights moving forward.