WASHINGTON—The Federal Trade Commission on Thursday issued a plan to ban noncompete clauses, a proposal that would allow workers to take jobs with rival companies or start competing businesses but raises the prospect of legal opposition from companies that say the practice has a legitimate purpose.

The FTC said noncompete clauses constitute an exploitative practice that undermines a 109-year-old law prohibiting unfair methods of competition. Noncompete clauses, which typically bar employees from joining a competitor for a period after they quit, affect nearly one in five American workers, according to the agency. Long associated with higher-paid managers, the clauses have also been imposed on lower-wage workers who lack access to trade secrets, strategic plans and other reasons that could be cited for hampering job switchers, the agency says.



If the FTC eventually votes to adopt the proposal, companies would have to rescind noncompete requirements they impose on workers and let employees know about the change. FTC officials say noncompetes suppress wages, restrain new business formation and hurt the ability of companies to hire workers they need to grow.

“Noncompetes are basically locking up workers, which means they are not able to match with the best jobs,” Chair Lina Khan said on a call with reporters Wednesday. “This is bad for competition. It is bad for business dynamism. It is bad for innovation.”

Noncompetes can even affect workers who lose their jobs and then can’t land a similar role because of the restriction. Alex Mumm, 28, said he was laid off in September from his sales manager job at Majic Plastics, an industrial recycling company in St. Charles, Ill., with which he had signed a noncompete agreement when he joined several years earlier.

Soon after he got a new job in recycling, he said, a Majic representative contacted him and threatened legal action. He quit the new job that same day, he said. He said it would be difficult to find a role in his industry that doesn’t violate the noncompete, which is in effect for a year.

“It’s something I didn’t really think about until it happened to me,” he said. “At the end of the day, you’re talking about the livelihood of people, their lives and their families.”

Majic didn’t immediately respond to requests for comment.

In a full discussion of the proposal made public Thursday, the FTC estimated that getting rid of noncompetes would increase employee earnings annually by as much as $296 billion. Some of that value represents an income transfer from firms to workers, and from consumers to workers if firms raise prices because they need to increase wages to retain workers, the agency said.

The four-member commission voted 3-1 last month to issue the proposal, which is subject to a 60-day period of public comment before it can be adopted as a regulation. Republican Commissioner Christine Wilson voted against the plan, writing in a dissent that the FTC has gathered only scant evidence to support a complete ban on noncompete agreements.

The proposal was expected by business groups, which sometimes say noncompetes have beneficial effects, such as safeguarding confidential customer data and intellectual property. Ms. Khan said in an interview with The Wall Street Journal in June that it was an urgent task for the FTC to rein in the growth of noncompete agreements.


Federal Trade Commission Chair Lina Khan said noncompete clauses are bad for competition and innovation.


President Biden 18 months ago called on the FTC to ban or limit clauses in employment contracts that restrict workers’ freedom to change jobs. Most states limit noncompete clauses or require the restrictions be reasonable, which leaves them open to judicial interpretations. A handful of states, including California, say the clauses are unenforceable in employment contracts.

The rule, which would pre-empt many state laws, could have a big impact in states such as Georgia, which amended its law in 2011 to give businesses more flexibility in using noncompetes.

The state law generally allows two-year noncompetes for key employees, managers and other supervisors, sales personnel who negotiate with customers, and people who obtain orders or contracts for the company, said Neal Weinrich, an Atlanta attorney who focuses on noncompete agreements and trade secrets.

Employees bound by noncompetes generally don’t want to leave their jobs because they worry about violating the deal with their employer or fear another local company won’t hire them, Mr. Weinrich said. “Georgia is much more employer friendly” than before the 2011 law change, he said.

The rule proposal is the first time in decades that the FTC has embarked on a rule-making project that seeks to broadly outlaw business conduct on competitive grounds. Some conservatives have argued that the FTC lacks authority to write rules targeting anticompetitive practices.

“The rule proposes to regulate a significant portion of the American economy through a ban on noncompetes,” Ms. Wilson wrote in the dissent. A rule “indisputably will negate millions of private contractual agreements and impact employer/employee relationships in a wide variety of industries across the United States.”

The U.S. Chamber of Commerce said Thursday it is weighing a lawsuit over the proposal if it is adopted. “We don’t believe they have the statutory authority,” said Sean Heather, the Chamber’s senior vice president for international regulatory affairs and antitrust issues. “They know they are on very tenuous ground.”

The FTC’s proposal includes one exception for noncompetes between buyers and sellers of companies. The restricted person would need to have owned at least 25% of the firm, according to the FTC’s plan.

Federal regulators have faced headwinds from the courts in recent years over policies and enforcement tactics that some judges found to exceed the agencies’ statutory authority.

Last year, the Supreme Court said in an opinion targeting an environmental-protection rule that when federal agencies issue regulations with sweeping economic and political consequences, the measures are presumptively invalid unless Congress specifically authorized the action.

Ms. Khan has argued that the FTC has clear authority to write competition rules and has written that drafting regulations is a more efficient way to inform businesses and consumers about what the law allows. Historically, the agency has used its enforcement cases to show which acts or practices cross the line.



“There is very strong support for us taking this action,” Ms. Khan said.

The FTC has also moved under Ms. Khan to step up how it uses enforcement to go after unfair methods of competition.

On Wednesday, the FTC announced settlements with several companies that it said collectively required thousands of employees to sign noncompete agreements. The companies agreed to drop the provisions and stop enforcing them against any workers they accused of violating the rule.

The FTC said one of the defendants, Prudential Security Inc. and Prudential Command Inc., required low-wage security guards to sign contracts that barred them for two years from working for a competing firm within a 100-mile radius of where they had been stationed for Prudential. The employees typically earned wages close to the minimum wage, but Prudential’s restrictions said they would have to pay a $100,000 fine if they violated the noncompete clause, the FTC said.

Prudential Security and Prudential Command had common ownership and were based in Michigan but operated in several states, the FTC said. The companies’ owners last year sold their security business to another firm that doesn’t subject the employees to noncompete clauses, the FTC said in a legal complaint. The owners of the security companies couldn’t be reached for comment.


link; https://www.wsj.com/articles/f...586?mod=hp_lead_pos4

I'd never hire anyone at my company without one, with the exception of a janitor or receptionist.

I worked for a consulting company once that used their noncompete to prevent employees from working at any company where they placed consultants. If you worked there, you were prevented from taking a job at 70% of the employers in the area, not just places where you were a consultant.

It basically kept many workers hostage and made them easier to control (like H1Bs), so after that I read any noncompete document carefully.

Before I retired the last place I worked at tried to slip a no compete clause through in some mid year paperwork/ mid year compliance training.

I told my manager even though I had no plans to re-enter that type of business circumstances could always rear it’s ugly head where I might have to and I was not signing it. The usual “you have to sign it or you could be terminated” got the reply from me “Do what you gotta do, I’m not signing!”

Apparently the corporation got enough backlash to rescind the new policy.

I was told/taught they won't stand up in court... at least a standard one... the only contract you can make is to put a price on the training you paid for the employee and they have to pay that back if they leave and go to work for someone else.... you can't stop them from working where they want to but you can put a price on the investment to put into hiring and training them.

It is a mixed bag in Healthcare. A young cardiologist comes into an established practice. He has a more pleasant manner than the older cardiologist. Not any better clinically, but patients like him. He decides to open a new clinic down the street and takes a number of patients with him. Without a noncompete clause he loses substantial revenue. That is unfair in my opinion.

quote:

Originally posted by Blume9mm:
I was told/taught they won't stand up in court... at least a standard one... the only contract you can make is to put a price on the training you paid for the employee and they have to pay that back if they leave and go to work for someone else.... you can't stop them from working where they want to but you can put a price on the investment to put into hiring and training them.

That's essentially what our noncompete is about. It's a 30 month internship requirment/supervised training, to attain the professional license. I refuse to train my competition.

Can't say I'm for banning noncompete agreements.
If you don't agree then don't sign it.
The Gov't needs to stay out, IMO.

Noncompetes in theory are good when used to do what they are intended for. (See shovelhead's, ZSMICHAEL's and AKSuperDually's posts.) However, employers sometimes make them too broad and restrictive. Yes, the employee may likely prevail, but not without significant time and expense. I'm not in favor of eliminating them, but I may be in favor of reform.

There's a saying in sales, that 'People buy from People'. If one feels they can provide a better product/service, why should they be prohibited from becoming entrepreneurs, except on the terms of their current (or former) employer?

If the job sucks, vote with your feet, I always say. However little I think of such agreements, they are still a private affair.

Both of my daughters had bad experiences with non-competes.

One ended up in court with a lawyer paid by her new employer. The other took time off to have a baby to run out the clock.

Both were examples of companies trying to lock in their employees, which artificially stunted pay and professional advancement. They were not protecting proprietary information. Neither of my daughters were taking customers with them.

I am all for the law restricting non-competes to only protecting proprietary information.

I worked for a life and health insurance company for thirteen years, all the way from a policy assembler to a department manager, to a business analyst in systems. When many of us were laid off after Y2K there were two related insurance software companies that really wanted us. I went to work for one as a technical writer. Their noncompete was so restrictive that I essentially couldn’t have done anything related to my many years of experience in Texas when I got laid off. That is how I ended up being a paralegal. Screw ‘em. I was sick of layoffs on Friday and more H1Bs on Monday anyway.

The place from which I retired tried to get me to sign an employment contract with a noncompete clause. I noted that the majority of businesses in our entire region could arguably be competitors, so that would essentially prevent me from obtaining any employment in my field, should we part ways, without leaving the state, and I didn't feel that reasonable. I also suggested that, for that reason, it probably wasn't enforceable, and pointed out I'd gotten the job there via referral from a common acquaintance, and they'd hired me away from somebody that was arguably a competitor. Lastly: I assured them I regarded anything I learned of their business, plans, or projects as automatically covered under an implicit NDA, just as I had for every employer I'd ever had. They agreed to strike that clause.

My non-compete contract was so restrictive, that after the company quit the contracting space I was employed in and laid me off, their lawyers sent me a letter informing me that I could not work even in our industry for one year, AT ALL, PERIOD, or they could sue. I thought that was so unrealistic and stupid that I and everyone else basically ignored it, since it was so stupid on it's face, since most or all of us were only employable in our field - i.e., it didn't make sense for software engineers to work as lawn maintenance workers for a year, totally stupid. But that's apparently what we signed on to in the beginning. That was an insultingly strange experience.

I was advised by a couple of attorneys in Michigan that a Non-Compete was more or less useless. It's a bully tactic that a lot of companies use but don't stand up well in court for a few reasons.

1. If they terminate you, you can never work in the field you are expert in, and thus they are denying you the right to support yourself. Plus, if they terminate you, all contracts are terminated too

2. They are in essence forcing you to remain employed with them as you are unable to leave and utilize your training and expertise to support yourself in a more lucrative or beneficial role.


What it does, is provide a document that should you leave and go into direct competition, using knowledge gained about your former company against then in competition, shows that you agreed not to which would help them in court.

I recently had a friend laid off and posted about a similar tactic being used. She contacted their legal directly and received an apology and promise that she was fine.

quote:

Originally posted by IntrepidTraveler:
Noncompetes in theory are good when used to do what they are intended for. (See shovelhead's, ZSMICHAEL's and AKSuperDually's posts.) However, employers sometimes make them too broad and restrictive. Yes, the employee may likely prevail, but not without significant time and expense. I'm not in favor of eliminating them, but I may be in favor of reform.

IF a company has invested in an employee time, money and training then sure, they have a right to protect their “investment”. But in my case and in my co-workers who said “no”, we were trained long before we went to work there, in my case they hired me with almost forty years experience so it wasn’t like they had any hand in my training.

In fact the statement was laughable to me how the company had made a sizeable investment in making me part of their team…..

I'm a CNC machinist, programmer and mechanical designer.

There are so few jobs in my area like this, the Non-compete would stop me from making a living. I'd never sign one.

They are enforceable in Florida IF reasonable in time, place, and manner of restriction.

I write them, negotiate them, and fight against them. They are right and proper in certain instances. For example, sales with respect to existing customers and prospects, executives, particularly when a business is sold, and highly competitive technical fields, where training and expertise will give a material competitive advantage if a key employee leaves.

I find, however, that too many companies abuse them as a means of restricting, or underpaying employees.

Also common for many professionals is a provision that is a non-solicitation provision in agreements. While similar to a non-compete (and sometimes mislabeled as such) these tend to focus on restrictions applied to pursuing or working for clients/business of the employer for a period after leaving, as well as restrictions on recruiting away other employees from prior employer.

While some folks view those as a non-compete, that's really not what it is and is much closer to the realm of reasonable and enforceable assuming the time durations are not excessive.