FTC Moves to Ban Non-Compete Clauses in Employment Contracts. Opponents Vow to Fight
Non-compete clauses are commonly used in employment contracts to prevent employees from working for a competitor or starting their own competing business for a certain period within a defined geographical area after leaving their current job. They are often used to protect the employer’s trade secrets and business interests.
But that could change due to a proposed ban on non-compete agreements by the Federal Trade Commission (FTC). The FTC announced its sweeping proposal on January 5, 2023, arguing the move will protect workers from unfair labor practices, reduce litigation costs, and help promote competition in the labor market.
The proposed ban offers limited exceptions, including contracts necessary to protect trade secrets, contracts related to the sale of a business, and contracts necessary to protect the employer’s legitimate interests.
The FTC argues the imposition of non-compete clauses is an “exploitive practice” that negatively impacts the labor market by preventing workers from moving to higher paying jobs, reducing wages, suppressing entrepreneurship, and reducing the number of jobs available. The proposed ban is an effort to address these issues.
Opponents argue the ban is detrimental because it will reduce employers’ ability to protect their trade secrets and business interests. If implemented, the rule will undoubtedly result in legal challenges, including from the US Chamber of Commerce, which says it will fight the ban in court.
The FTC is currently seeking public comment on the proposed ban. After the comment period closes, the FTC will review the comments and decide whether to make changes prior to implementing the final rule.
Woods Fuller's Labor and Employment Law attorneys help businesses protect and manage their workforce in today’s challenging employment environment. We provide experienced counsel in the face of constantly changing law policies and regulations. For information on how this new policy will affect your business, contact our Labor and Employment Law team.
