After voting 3-1 last month, the Federal Trade Commission has proposed a rule to ban noncompete clauses in the U.S. The FTC has stated that they believe noncompete clauses harm innovation in business and suppress wages, ultimately violating the FTC’s fair trade laws.
A ban on noncompete clauses could help the economy
1 in 5 workers are affected by noncompete clauses. By limiting workers ability to change jobs and achieve upward mobility we see a lack of healthy competition, something that drives our economy.
Moving to ban noncompete clauses may increase wages
Economists also believe noncompete clauses are to blame for stagnant wages in recent years. The FTC estimates that by implementing this new rule, wages will increase by about $300 million yearly. By banning noncompete clauses in Oregon, a study in 2021 found that wages for low-wage workers rose by 2% to 3%.
Noncompete clauses are very important for businesses that depend on trade secrets and their highly educated employees. Though the clauses make sense for high-level employees, many are suggesting regulation on their use among low-wage employees instead of eliminating them all together.
Many assume non-competes to be non-negotiable
Some may argue that employees have the right to negotiate noncompetes in their contract or simply decline job offers that attempt to implement noncompete clauses, but many job seekers are not aware of these clauses until after being hired.
In 2015 The Journal of Law and Economics found that only 10% of employees negotiated over noncompete clauses in their contracts, assuming they had no say in the matter.
FTC noncompete bans would affect current and future noncompete clauses
The FTC’s new proposal would not only make it illegal for employers to implement noncompete clauses, but it would also require employers to eliminate any current clauses and inform all employees of the change.
Though we would not see this potential ban on noncompetes until late 2023, many employers will likely begin making changes to other confidentiality provisions in anticipation of this change.
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