FTC Proposes Banning Non-Compete Agreements

It’s not exactly NDAs they’re after — but non-compete agreements are facing the chopping block.

The Federal Trade Commission (FTC) on Thursday outlined its plan to ban agreements between employers and employees that, among other things, prevent employees from working with competitors for certain time periods after leaving a job.

The rule would ban non-competes, essentially, defined as follows: If an agreement “has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer,” the agency wrote.

“We’re not talking about your run-of-the-mill NDA,” said Elizabeth Wilkins, director of the Office of Policy Planning, on a press call Wednesday, per POLITICO.

The agency said that the rule also takes aim at NDAs that are “written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer.”

It would also prohibit agreements that require employees to repay training costs, “if the worker’s employment terminates within a specified time period, where the required payment is not reasonably related to the costs the employer incurred for training the worker,” the agency wrote.

Non-competes decrease wages for workers because employers don’t have to compete as hard for workers and employees can’t leave their jobs, the FTC said.

“Non-compete clauses also prevent new businesses from forming, stifling entrepreneurship, and prevent novel innovation which would otherwise occur when workers are able to broadly share their ideas,” the agency added.

If the proposal is adopted by the agency, companies would be required to nix noncompetes and inform employees, per Wall Street Journal.

However, the Chamber of Commerce, a business advocacy organization, is debating a lawsuit, per the WSJ, particularly on the grounds that the FTC does not have the “statutory authority” to make the rule, said Sean Heather, senior vice president for International Regulatory Affairs and Antitrust at the Chamber, per the outlet.

The group also disagrees on philosophical grounds.

In a statement to POLITICO, Heather said “attempting to ban noncompete 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.”

A 2009 study focused on Michigan workers found that non-compete agreements reduce worker mobility. They are very common in Big Tech and in Silicon Valley, however.

The FTC voted to issue the proposal last month, and it was somewhat expected, particularly in the wake of President Biden’s executive order that called on the agency to take measures it said would increase competition, including taking aim at non-competes, per Gizmodo.

The proposal is now subject to a 60-day comment period.