The FTC Decides Whether Non-Compete Clauses Are Legal

( — On Tuesday, April 23, the Federal Trade Commission (FTC) voted to ban the use of noncompete agreements.

The original intent of such agreements was to prevent workers from leaving their jobs and taking insider knowledge with them as they went to work for their former employer’s rivals. For some companies, the fear of corporate espionage is justified, as companies can hire away employees for the express purpose of gaining access to technological advances. It has expanded though and noncompetes have spread beyond that use. Now they are often applied to low-level employees who have no such access to proprietary information.

The FTC estimates that one in five US workers are now bound by noncompete clauses in their current jobs. They claim this restricts workers from freely switching jobs and lowers wages. They also assert that the practice undermines competition and innovation while also discouraging new businesses from getting started. The ban passed by a narrow margin of a 3-to-2 vote among its five commissioners. The two who opposed the ban argue that it will not survive legal challenges. The Chamber of Commerce has already indicated they are ready to file a lawsuit opposing the ban.

Daryl Joseffer, chief counsel of the U.S. Chamber’s Litigation Center, has referred to the ban as a power grab. The Chamber’s chief policy officer, Neil Bradley, believes it will be used to micromanage the economy and Suzanne Clark, the chamber’s CEO, has denounced the ban as unlawful. However, the FTC claims that the ban will ultimately boost wages, lower health care costs, aid the growth of new businesses and significantly increase the number of new patents each year.

Several states, as well as Washington, D.C., have nearly complete bans on the practice, and still more only allow them within narrow parameters. If the FTC ruling is allowed to stand, it would take effect nationwide in 120 days. The decision would still allow noncompetes to remain for “senior executives” who earn $151,164 per year or more but would otherwise make all standing noncompete agreements unenforceable. It would completely block all new employment agreements from including a noncompete clause.

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