FTC bans employers from using noncompete clauses

The US Federal Trade Commission (FTC) has banned non-compete clauses to “spur innovation” and protect workers’ rights and wages, the regulator said in a report. press release. The new rule would exempt most new and current employees from such arrangements, except for “policy-making” executives who earn more than $151,164 a year.

“Non-compete clauses keep wages down, stifle new ideas and rob the American economy of dynamism,” said FTC Chair Lina M. Khan. The agency estimates the new rule would create 8,500 new businesses annually, increase worker earnings by $524 a year and reduce health care costs by $194 billion over the next decade.

Widely used in the technology industry, non-compete clauses prevent employers from freely switching to similar work or starting businesses in the same field. The result is that workers often have to stay in jobs they don’t want, move to lower-paying positions, relocate, or defend against costly litigation. “About 30 million workers — about one in five Americans [in the workforce] are “subject to non-competes,” according to the FTC.

The Commission found that non-competes adversely affect competitive conditions in labor markets by preventing effective matching between workers and employers. There is also evidence that non-competes lead to increased market concentration and higher prices for consumers.

Companies must now repeal existing non-compete clauses and notify employees of the change. The decision applies to most employees and future hires, but existing deals with senior executives still apply as long as such deals are mutually agreed upon.

Tech companies use non-competes ostensibly to protect IP, but they actually operate to lock out employees. The FTC said that trade secret laws and nondisclosure agreements (NDAs) are a better way to protect IP, and that “employers who want to retain workers can compete on merits for workers’ labor services by improving wages and working conditions.”

Microsoft is the third largest technology industry employer in the United States Removed There are such provisions in 2022. “Although our existing employee agreements contain non-compete obligations, we do not support the use of such clauses as a retention tool,” the company said.

The FTC vote went along party lines, 3 to 2. Republican Commissioner Melissa Holyoke said the Commission “overstepped the bounds of its power” and predicted the decision would be challenged in court and overturned.

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