Feds Target Non-Compete Agreements
The Federal Trade Commission has moved to ban non-compete agreements, which prevent workers from leaving their jobs to go to a competitor, or from starting or helping a competing business. Those agreements limit a former employee from doing so for months or years and often limit the geographical area in which they can work.
These agreements have been applied mostly to workers in the tech field and the finance and entertainment industry, but also to doctors, hairstylists, sales and food service employees.
According to some studies, non-competes impact 20% to 45% of private-sector employees in the United States. The Feds believe that they cause “wage stagnation” and limit start-up businesses. While the “public” is allowed to give comments on the proposal over the next 60 days, the likelihood is that the new “rule” will take effect 180 days after its final version is published. How it will affect small and medium-sized companies – if at all – is unknown. This federal agency usually targets big business.
But there is also a trend on the state level to ban or limit these agreements. As of 2019, more than 25% of employees in New Jersey workplaces are bound by noncompete agreements. That number jumps to almost 50% when some, but not all, employees of a business are included.
The FTC proposal requires employers to withdraw existing non-competes and inform their employees that they no longer apply. It would be illegal for a business to make such an agreement with any employee, independent contractor, intern or volunteer. The new rule will likely be challenged in court and delayed for years in litigation.