This is a sponsored column by attorneys John Berry and Kimberly Berry of Berry & Berry, PLLC, an employment and labor law firm located in Northern Virginia that specializes in federal employee, security clearance, retirement and private sector employee matters.
By Kara Osborne, Esq.
On January 5, 2022, the Federal Trade Commission (FTC) proposed a rule that would ban U.S. employers from imposing non-compete clauses on workers.
The Code of Federal Regulations, Subchapter J, Part 910 (b)(1) defines non-compete clauses as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”
This proposed rule not only would prevent employers from entering into non-compete clauses with their employees but also would require employers to rescind existing non-compete clauses within a specified period of time.
The proposal comes after President Biden called for the FTC to ban or limit clauses in employment contracts that restrict workers’ freedom to change jobs. FTC Chair Lina M. Khan said in a statement, “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” and “Non-compete block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”
The FTC estimates that this proposed ban could dramatically increase wages by almost $300 billion per year.
Prior to this proposed rule the FTC issued new guidance on how it would exercise its authority to regulate “unfair methods of competition” under Section 5 of the FTC Act.
The proposed rules states that the use of non-compete clauses would be an “unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.”
Employers could argue that non-compete clauses allow for broad protection of their trade secrets and investments, but as shown by the FTC and in comments made by President Biden, the clauses are overused at virtually every level of employment and deprives workers of their ability to grow within their field and pursue a higher salary.
Should the proposed rule pass, it might require employers to shift focus on protecting their innovations with the use of confidentiality clauses and compliance with trade secret laws rather than reliance on overly broad non-compete clauses that stifle competition and economic growth.
With this proposed ban on non-compete clauses, workers would have the ability to change jobs more freely causing employers to become more focused on protecting their employees, their working conditions, and the wages they earn.
It should be noted that within the proposed rule there is one narrow exception that applies to individuals selling a business: their ownership interest in a business or the business’ operating assets in total. These specific non-compete clauses would remain subject to federal antitrust law. Should the proposed rule go into effect it is likely to face many legal challenges.
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