What the FTC’s ban on noncompete clauses means for you
The Federal Trade Commission on April 23 banned employers from using noncompete clauses, which the agency said suppress wages, stall new business formation and stifle companies from hiring the workers they need to grow. The measure, approved by the agency’s Democratic majority on a 3-2 vote, prohibits companies from enforcing existing noncompete agreements on anyone other than senior executives. It also bans employers from imposing new noncompete contracts on senior executives in the future.
The nation’s biggest business lobbying group promptly moved to block the rule. In a suit filed in federal court in East Texas, the U.S. Chamber of Commerce and other business groups argued the federal government has never regulated noncompete contracts and Congress never authorized the FTC to do so.
The FTC says nearly one in five American workers is affected by noncompete clauses. Here is what you need to know about noncompete clauses and what to keep in mind before signing. Noncompete clauses prohibit departing workers from sharing trade secrets or proprietary information with new employers, or from taking proprietary information, such as customer lists, and using it to establish their own business.
When used, these clauses are typically contained in a longer employment agreement that a worker signs. The clauses usually apply for a period of time, such as a year or two years, or to a geographic area. The FTC says noncompete agreements violate a 110-year-old law that prohibits unfair methods of competition.
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