Federal Trade Commission Proposes Rule to Ban Non-Compete Agreements
On January 5, 2023, the Federal Trade Commission (FTC) proposed a new rule that would ban employers from requiring their employees to sign non-compete agreements. The FTC is currently accepting comments from the public. https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete_nprm_fact_sheet.pdf
What is a Non-Compete Agreement?
A non-compete agreement is a legally binding contract that employers often use to protect their business interests. In this type of agreement, an employee agrees not to work for a competing company or start their own competing business for a certain period of time after leaving the employer’s company. The main purpose of a non-compete agreement is to protect the employer’s trade secrets, and confidential information, as well as its relationships with customers and clients. However, it’s important to note that the enforceability of non-compete agreements can vary depending on the specific language of the agreement and the laws of the state in which it is signed.
The FTC estimates that about 1 in 5 working Americans (30 million people) are bound by a non-compete agreement. These agreements can affect all ranges of the work force, from fast food employees to highly compensated executives. In proposing its rule to ban these onerous agreements, the FTC states:
‘By preventing workers across the labor force from pursuing better opportunities that offer higher pay or better working conditions, and by preventing employers from hiring qualified workers bound by these contracts, noncompetes hurt workers and harm competition.”
When workers are prevented from freely moving to a better opportunity, it stifles not only wages, but new businesses and new ideas. When workers are confronted with the opportunity to take a new job, they often feel stuck because they are bound by a noncompete agreement. The FTC estimates that the proposed rule would increase wages across all industries and job levels by $250 to $296 billion dollars per year.
Non-Compete Agreements in Indiana
Indiana has a long history of not favoring noncompete agreements; however, they are enforceable in Indiana. Clients often contact us wanting to know if they can get out of their noncompete agreement. Sadly, the answer they often receive is that while their agreement may not be enforceable, the only way to determine that is to litigate the issue, which can be very expensive. Furthermore, most employers put provisions in their noncompete agreements that employees can be responsible for the employer’s attorneys’ fees if they challenge the agreement and lose.
The new rule currently proposed by the FTC would ban employers from enforcing existing noncompete agreements, as well as prevent them from using them in the future. Employers would also have to notify their workers that the agreements are rescinded and no longer enforceable.
In summary, the FTC estimates the new rule would: 1. Increase workers’ earnings by nearly $300 billion per year. 2. Save consumers up to $148 billion annually on health care costs. And, 3. Double the number of companies founded by a former worker in the same industry. If you are interested in commenting on the proposed rule, you can submit your comment here:
If you are currently working under a noncompete agreement, or have questions about entering in to one, you should contact an experienced employment law attorney so that you know your rights and obligations. Please feel free to call me for a free consultation.