On January 5th, the Federal Trade Commission issued a proposal that could potentially ban noncompete clauses which would allow workers to take jobs at rival companies or establish a competing business within their former employer’s line of work. The FTC found that noncompete clauses exploit unfair methods of competition as they block employees from joining a competitor for a set length of time after they quit. It creates difficulties for lower-wage employees who don’t have the trade secrets, strategic plans, and other forms of reasons that higher-paid employees have but they are still sanctioned under the same noncompete clauses in some cases.
If the proposal can gain enough traction and votes, then companies would have to revoke their non-compete requirements and inform employees about this change. The FTC believes that noncompete clauses “suppress wages, restrain new business formation and hurt the ability of companies to hire workers they need to grow,” per the Wall Street Journal. This is seen as a huge step towards a more equal opportunity for lower-wage workers who are unable to find work in the field they have been in for a while due to these noncompete clauses.
An example of this is Prudential Security Inc. barring low-wage security guards from working for a competing firm within a 100-mile radius for two years. If they happened to violate this noncompete clause, they would have to suffer a $100,000 fine.
The Commission voted 3-1 to issue the proposal and the public will have 60 days to submit comments on the FTC’s website where the Commission will assess the comments and modify any rules to which they deem necessary. This would then take effect 180 days later if there are no legal oppositions brought upon the FTC.