On January 19, 2022, the Federal Trade Commission (FTC) proposed a rule that would broadly ban the use of noncompete clauses by employers with respect to employees, independent contractors, and volunteers. Specifically, the proposed rule would make it illegal for an employer to enter into any noncompete agreement. It would also bar any attempt to enter into a noncompete. It would even bar maintaining a noncompete agreement with a worker. And, under some circumstances, it prohibits employers from telling a worker they are subject to a noncompete agreement.
Employers use noncompete agreements across industries and job levels to limit the movement of employees, including, for example, hairstylists, teachers, and physicians. Often included in the initial employment contract, noncompete clauses typically block employees from working for a competing employer or starting a competing business within a certain geographic area for a specified time period following the termination of employment.
Noncompete agreements have a debilitating effect on employees. Oftentimes, potential employees are forced into signing noncompete agreements in order to obtain employment, with limited, if any, bargaining power on their end of the agreement. Noncompete agreements limit employees’ ability to practice their trade and stagnate competition in the broader economy. Research has shown that noncompete agreements negatively affect competition in labor markets and reduce wages for employees across the labor force, even those not bound by noncompete agreements. In other words, noncompete agreements harm labor market competition by stopping employees from seeking out better job opportunities and preventing employers from hiring the best talent.
By banning noncompete agreements, the FTC estimates an increase in wages by nearly $300 billion per year and expanded career opportunities for nearly 30 million Americans. The National Employment Lawyers Association (NELA), an organization of lawyers who, like Kitzer Rochel, fight for workers’ rights, supports the rule.
The FTC proposed rule falls within a nationwide trend toward banning noncompete agreements. Minnesota has also introduced a bill banning noncompete agreements, following states such as California and North Dakota.
If you have questions about noncompete agreements—or any of the proposed rules and legislation—please contact Kitzer Rochel today.