It’s not exactly non-disclosure agreements they’re after, but non-compete agreements are on the chopping block.
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The Federal Trade Commission (FTC) announced this on Thursday outlined his plan Prohibit agreements between employers and employees that, among other things, prevent employees from working with competitors for certain periods after leaving their jobs.
The rule would prohibit the non-compete clause, essentially defined as follows: if an agreement “has the effect of prohibiting the employee from seeking or accepting employment with an individual or operating a business after the employee’s employment has ended at the employer’s office wrote.
“We’re not talking about your run-of-the-mill non-disclosure agreement,” Elizabeth Wilkins, director of the Office of Policy Planning, said on a press call Wednesday. by POLITICO.
The agency said that the rule also targets NDAs that are “written so broadly as to effectively prevent the employee from working in the same field after termination of the employee’s employment with the employer”.
It would also prohibit agreements that require employees to reimburse training costs, “if the employee’s employment ends within a specified period of time, where the payment required is not reasonably commensurate with the costs incurred by the employer in training the employee the agency wrote.
Non-competitions lower wages for workers because employers don’t have to compete as hard for workers and workers can’t quit their jobs, the FTC said.
“Non-compete clauses also prevent new business formation, undermine entrepreneurship and prevent new innovation that would otherwise occur when employees can share their ideas widely,” the agency added.
If passed by the agency, the proposal would require companies to ignore non-compete clauses and inform employees, per Wall Street Journal.
However, the Chamber of Commerce, a business advocacy group, is debating a lawsuit, according to the WSJ, particularly because the FTC doesn’t have the “legal authority” to make the rule, said Sean Heather, senior vice president for International Regulatory Affairs and Antitrust in the Chamber, according to the outlet.
The group also disagrees on philosophical grounds.
In a statement to POLITICO, Heather said that “attempts to ban non-compete clauses in all employment conditions overturn established state laws that have long governed their use and ignore the fact that, when used properly, non-compete clauses are an important tool in promoting innovation and maintaining competition.”
A 2009 study focusing on Michigan employees found that non-competition clauses reduce worker mobility. They are very normal in Big Tech and in Silicon Valley it is.
The FTC voted to release the proposal last month, and it was somewhat expected, especially in the wake of President Biden’s executive order calling for the agency to take measures it said would increase competition, including targeting on non-competition, per Gizmodo.
The proposal is now subject to a 60-day comment period.
