What is a non-compete agreement and why is the FTC banning it?
The Federal Trade Commission has voted to prohibit companies from forcing employees to sign non-compete agreements, which it says harms workers.
The Federal Trade Commission (FTC) has voted to ban companies from prohibiting their employees from moving to work for competitors.
The FTC has acted to disallow non-compete agreements, which forbid workers from getting a job at a competing company or engaging in certain competitive activities that may harm the employer’s business interests for a specified period of time after the termination of employment or contract.
What is a non-compete agreement?
This agreement, also known as a covenant not to compete, is a legally binding contract between an employer and an employee or contractor.
This kind of arrangement can involve a scope of restrictions, which would specify the activities or actions that the employee is prohibited from engaging in, such as working for a competitor, soliciting clients or customers, or disclosing trade secrets or confidential information.
The agreement also sets forth the length of time during which the non-compete restrictions will be in effect. This could range from a few months to several years.
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The FTC just banned noncompete agreements.
— Robert Reich (@RBReich) April 23, 2024
This is a big deal.
Noncompetes trap workers in their jobs and prevent them from using their skills to earn higher pay.
It's estimated that the ban could increase wages by $300 billion a year and impact nearly 30 million Americans. pic.twitter.com/vhWHHREwGj
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The contract may also include geographic limitations that define the area where the worker is prohibited from competing. This could be limited to a specific city, state, region, or even worldwide.
In exchange for agreeing to the restrictions, the employee may receive consideration, such as compensation, benefits, or access to proprietary information, training, or opportunities.
Non-compete agreements are often used by companies to protect their business interests, including intellectual property, trade secrets, and investment in training and development.
Why is the FTC banning non-compete agreements?
The Federal Trade Commission issued what it called a final rule to ban non-competes in the U.S. because these “clauses keep wages low, suppress new ideas, and rob the American economy of dynamism,” the agency said in a statement.
According to the FTC, these agreements “often force workers to either stay in a job they want to leave or bear other significant harms and costs.”
Whereas in the past, only top executives were often subjected to these contracts, almost 20% of American employees, or 30 million workers, are currently bound by non-compete clauses today, per the FTC.
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