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Published in Talent

Proposed FTC rule would ban use of non-competes blocking workers from jobs at competitors

BY Friday, January 06, 2023 02:58pm

Federal trade regulators want to ban the use of non-compete agreements that some employers use to keep workers from taking a job at an industry competitor.

The Federal Trade Commission estimates wages for American workers could increase by nearly $300 billion if the proposed rule issued Thursday ultimately takes effect. The ban also would “expand career opportunities for about 30 million Americans” currently bound by non-compete agreements “and are thus restricted from pursuing better employment opportunities,” the FTC states in the proposed rule.

The FTC, on a 3-1 vote, approved issuing a notice of proposed rulemaking. Once the notice is published in the Federal Register, the FTC will hold a 60-day public comment period.

In a legal briefing to clients, attorneys with law firm Miller, Canfield, Paddock and Stone PLC wrote that employers that use non-compete agreements “need not take any immediate action under the proposed rule, other than to consider providing comments to the FTC once the comment period opens.”

Miller Canfield suggested that “employers may want to start exploring methods of protecting intangible business assets through agreements other than non-competes,” attorneys wrote on the client alert. “Even if the proposed rule never is enacted, many state legislatures and courts have shown growing disfavor of broad or onerous non-compete agreements where not essential to protect the employer.”

In Michigan, legislation was introduced in Lansing in past sessions — most recently in April 2022 — to limit the use of non-compete agreements for certain low-wage positions.

The FTC’s proposed rule “would render all non-compete agreements, other than those entered into in connection with the sale of a business, unlawful ‘unfair competition’” under federal law, according to Miller Canfield.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chairperson Lina Khan said in a statement. “Noncompetes 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. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

The FTC also said that “evidence shows that noncompete clauses also hinder innovation and business dynamism in multiple ways — from preventing would-be entrepreneurs from forming competing businesses, to inhibiting workers from bringing innovative ideas to new companies.”

“This ultimately harms consumers; in markets with fewer new entrants and greater concentration, consumers can face higher prices – as seen in the health care sector,” the agency said.

The proposed rule would not apply for non-disclosure agreements that are often used to protect intellectual property, trade secrets and proprietary information at companies.

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