Workers Bound by Noncompete Agreements May Be in Luck

Workers across the United States that are bound by noncompete agreements may have some good news coming. The Federal Trade Commission (FTC) has suggested a new regulation that would prohibit employers from enforcing non-compete agreements on their employees. This common and frequently unjust practice limits salaries, inhibits creativity, and prevents entrepreneurs from launching new businesses. According to the FTC, this proposed rule could enhance overall salaries by approximately $300 billion annually and create more career prospects for around 30 million people by putting an end to this practice.

A non-compete agreement is a legally binding document between a company and an employee that outlines that an employee is forbidden to engage in any competitive activities with their employer after the termination of their employment. Such agreements also restrict employees from disclosing any confidential information or trade secrets to third parties, either during or after their employment period. These contracts are typically signed at the start of a worker’s employment with the company. Most of these agreements identify a designated time period during which an employee, contractor, or consultant is prohibited from working for a competing entity following the termination of their employment.

Noncompete agreements hinder competition in the labor markets of the United States by obstructing workers from pursuing better job prospects and by preventing employers from recruiting the most qualified candidates. Lina Khan, a current chairperson of the FTC, explained that the ability to change jobs is fundamental to economic freedom and a competitive, flourishing economy. Noncompete agreements restrict employees from switching jobs freely, which deprives them of better salaries and improved working conditions. The FTC’s proposed regulation, which puts an end to this practice, would foster more creativity and robust competition in the workforce nation-wide.

Noncompete clauses have an adverse impact on innovation and business growth in various ways. They impede aspiring entrepreneurs from launching rival businesses and inhibit workers from introducing contemporary ideas to new firms. Ultimately, this has an unfavorable impact on consumers. When there are fewer new players and more consolidation in the market, consumers may face higher prices.

To tackle these issues, The Federal Trade Commission has put forward a proposed regulation that would ban the use of noncompete agreements by employers. The FTC’s suggested rule would make it unlawful for an employer to engage in or try to engage in a noncompete agreement with a worker, uphold a noncompete agreement with a worker, or convey to a worker that they are bound by a noncompete agreement. The suggested regulation would extend to independent contractors and all individuals who work for an employer, regardless of whether they are paid or unpaid. Additionally, it would mandate employers to retract existing noncompete agreements and inform workers that such agreements are no longer valid. Steven Mitchell Sack, of counsel to Fitapelli & Schaffer and author of “FIRED!: Protect Your Rights & Fight Back if You’re Terminated, Laid Off, Downsized, Restructured, Forced To Resign or Quit” believes that the proposed rule by the FTC will strengthen workers’ rights and enable them to access better job prospects in the future.

Attorney Steven Sack also warns workers to avoid signing a contract with restrictive stipulations. However, if it is unavoidable, he suggests trying to bargain for better terms in the job offer, such as a higher salary, end-of-year bonus, increased vacation time, or other benefits, as well as more severance pay in the event of a layoff. Attorney Sack strongly believes that there is no justification for an employer to dictate the places where an employee can or cannot work after they terminate their employment. The Federal Trade Commission is asking for input from the public regarding the suggested regulation. This proposal is founded on a preliminary determination that noncompete agreements are an unjust method of competition and go against Section 5 of the Federal Trade Commission Act. The FTC will examine the comments and may modify the final rule based on the feedback and additional analysis of this matter. The public can submit comments until April 19, 2023.

Before you enter an unforgiving noncompete contract, make sure you contact an employment attorney to ensure that you are protecting yourself and not limiting your future by signing off on unfair agreements. If you are planning on joining a new company, or if you have questions about your current noncompete agreement, contact the attorneys at Fitapelli & Schaffer for a free phone consultation at (212) 300-0375.