The Federal Trade Commission aims to ban the non-compete clauses in employment contracts. The clause prevents former workers from acquiring jobs from their previous employer's competitors or being competitors themselves.
Removing the Clause
The FTC proposed a non-compete clause in rulemaking which states that the clause only slows progress down and decreases competition for workers. It would not be easy to just change the clause seeing as it has been used by tech giants for years.
There have been instances when the clause was not followed and former employees had to face legal action. According to The Verge, Acer filed a suit against its former CEO for violating the terms. Microsoft and Konami also implemented the clause on their executive employees.
Should the bill be passed, companies will have to remove the clauses in employment contracts. It will also prevent them from creating or adding new ones. The rules will also apply to contractual employees.
For the proposal to be granted, the FTC will have to consult the public first. The crowdsourcing for comments will be in regard to franchises, executives, and workers with high or low wages and how they will be treated considering the rule.
Why the FTC Wants to Ban the Clause
The FTC believes that the clauses significantly reduce the employees' wages. The non-compete clauses prevent employees from seeking a job for a similar role or from a company with the same business.
This gives companies the power to control the wages of their employees since they won't be able to transfer to higher-paying jobs. The FTC believes that banning the clause increase workers' earnings across the industry and job level by $250 billion to $296 billion annually.
The clause may also prevent new businesses and ideas from becoming a reality. Former employees who want to be entrepreneurs would not be allowed to form new businesses within the same industry for fear of facing legal consequences.
Workers with good or brilliant ideas won't be able to bring them to new companies since it is also a violation of the clause. According to FTC's fact sheet, consumers face higher prices in markets with fewer entrants and greater concentration.
It also leaves little bargaining power for employees, since the con-compete clauses don't give much choice for them. This could be used to exploit the workers and force them to stay despite not providing the compensation they deserve.
The clause is usually to protect trade secrets that the company has. For instance, a former employee could leave the company and take its unreleased ideas to a competitor so they could take it public first.
However, there are many ways for companies to protect confidential information. This has already been proven by California, North Dakota, and Oklahoma since the non-compete clause cannot be enforced in the mentioned states. Still, they managed to attain business success.
The proposal will benefit the one out of five American employees that are bound by the clause, which accounts for 30 million people according to evidence.
