The Federal Trade Commission on Thursday said it is proposing a rule to ban employers from imposing noncompete agreements on workers and to rescind all existing noncompete agreements.
The FTC’s reasoning: Such agreements, which affect millions of rank-and-file employees and independent contractors across industries, in addition to business executives, have suppressed competition, wages and entrepreneurship.
“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages — even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, Director of the Office of Policy Planning. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”
The proposed rule was cheered by the liberal-leaning Economic Policy Institute.
“Why do we need this rule? The only source of power nonunionized workers have vis-à-vis their employers is their ability to quit and take a job elsewhere. So, SURPRISE, employers are using noncompete agreements to cut that source of worker power off at [the] knees,” the organization said in a statement.
Still, the proposal’s broad parameters, if finalized, are likely to be challenged in court.
“As written, this could apply to the janitor and the CEO alike,” said employment attorney Ashley Herd, founder of ManagerMethod.com and a former human resources executive.
One thing the proposed rule wouldn’t do is ban employers from imposing other types of employment restrictions, such as non-disclosure agreements or non-solicitation agreements that ban employees from poaching a company’s customers when they leave.
But even those could get nixed, the FTC said, if “they are so broad in scope that they function as noncompetes.”
When might an actual ban take effect? It could take many months, and possibly push into next year.
The proposed rule will be open for public comment for 60 days after which the FTC will review the comments and possibly amend the rule before issuing a final version.
But given the broad implications of the proposal Herd said she wouldn’t be surprised if the deliberation process gets extended by at least a few months.