You may be familiar with a non-compete clause: your employer, as a condition of your employment, states that upon your departure, you may not work as a competitor to that business, or in the same line of work for someone else, for a specified period of time in a specific region. Depending on your state, such agreements may be fully enforceable; not enforceable at all; or somewhere in the middle. New Jersey, for example, permits non-compete agreements but pending legislation may add new qualifiers to them.
WHAT IS THE FTC DOING?
However, the federal government may take it a step further. On January 5, 2023, the Federal Trade Commission (FTC) announced in a Notice of Proposed Rulemaking that it is considering a “Non-Compete Clause Rule.” This rule aims to restrict employer’s ability to place these kinds of agreements in employment contracts. This rule would make unlawful – via a violation of Section 5 of the Federal Trade Commission Act – for employers to enter or attempt to enter into non-compete clauses with workers, maintain workers with non-compete clauses, or otherwise represent to a worker that they are subject to said clauses in certain circumstances.
The FTC notes that research shows non-compete clauses result in reduced competition in labor markets and reduced wages for employees in those markets. As an added result, such non-compete clauses also affect the value and quality of goods and services provided by employers that institute such clauses. On the other side, however, it is noted that the non-compete clause can often be used as a “bargaining chip” between employees seeking higher salary and an employer who is seeking to retain them or make sure they have less competition.
WHAT COULD THIS MEAN FOR EMPLOYERS?
If the FTC establishes this rule, employers all over the country will need to revisit their employment contracts, and those that fail to do so may find themselves targets of litigation. As staunch defenders of “the little guy,” the Shub Law Firm LLC has their eyes fixed on this potential legislation and how it might affect individual employees.