The FTC decrees: No more non-compete agreements
Is there anything that Federal Trade Commission Chair Lina Khan doesn’t think she can do? Apparently not. On Tuesday she and her fellow Democratic commissioners effectively invalidated tens of millions of employment contracts without authority from Congress. The FTC’s 570-page rule outlaws so-called non-compete agreements across the economy.
Employers use these agreements to restrict workers from joining competitors or starting their own firms for a specified duration after leaving. They protect an employer’s intellectual property and investment in worker development. The FTC says such agreements “restrict the freedom of American workers and suppress wages" and “stifle new businesses and new ideas." Disregarding reams of evidence to the contrary, the agency bars employers from enforcing existing non-compete agreements for workers who aren’t “senior executives." Its rule also forbids employers from entering future non-compete agreements with “senior executives" in a “policy-making position" who earn more than $151,164 a year.
By the FTC’s estimate, some 30 million workers are currently covered by non-compete agreements, which will now be rendered void. Non-compete agreements may frustrate some workers, but they are rarely iron-clad. Employers usually are willing to negotiate less restrictive covenants to protect their trade secrets and training investments.
They also usually offer more pay and perks in exchange for workers agreeing to a non-compete. According to a U.S. Chamber of Commerce survey, 78% of responding employers said they provide additional compensation that spans the duration of an agreement or longer.
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