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FTC Proposes Rule to Ban Non-compete Clauses 

When getting hired by a company, the last thing you’re thinking about is what will happen when you leave. Many people see themselves staying long-term and are willing to sign a non-compete contract (or clause) without doing their due diligence. 

As time goes on, the company may not live up to your expectations. Thus, you may find yourself wanting to seek better employment opportunities. Unfortunately, a non-compete clause blocks you from being able to pursue something competitive in your field. It even stops you from starting your own business. 

The Federal Trade Commission (FTC) recently introduced a new subchapter or rule that would ban companies from using non-compete clauses. This would free up job opportunities for as many as thirty million workers and raise wages across all industries, providing a more livable wage. 

What is a Non-compete Clause? 

A non-compete clause is a term of employment that prevents employees from seeking work at a company in a related field or competitor of the company they signed on with, usually for a select period, typically two years. The idea is that these companies are enforcing these non-compete clauses to protect intellectual property. In reality, a confidentiality agreement can offer the same protections without limiting the employees from being able to seek employment elsewhere.  

What the FTC Rule Could Mean 

The FTC estimates about one in five workers in America have signed non-compete clauses. With the introduction of the new rule, employers would not be able to add non-compete clauses to employment contracts. The new law also dictates that employers must inform employees held under non-compete clauses that the contracts are no longer valid. 

Non-compete clauses are well-known in the tech industry and are more common around higher-paying jobs. Recently they have been popping up across industries such as fast food, salons, and more. Many of these jobs are low paying to begin with. Placing a non-compete puts employees at a severe disadvantage in finding opportunities where pay or benefits might be better in an industry they know and are familiar with. 

The justification for non-competes across many industries extends beyond protecting intellectual property. Companies claim the non-compete offers them protection for their investment in new hires. Hiring new employees costs companies more money than retention in training and assets. It also allows them to provide lower wages as the company knows they can’t move to other, higher-paying companies. 

Non-compete clauses have already been banned in several states or have enforceable restrictions to protect employees and employers. By eliminating these clauses, more money can flow through the economy.  

The labor market will become more competitive, leading to companies hiring at increased wages that can increase productivity and worker satisfaction. This leads to more quality and quantity in products and services that can drive down prices, especially with inflation and recession. Companies can choose to eliminate these clauses can boost your company’s ability to hire top talent and retain employees for longer. To learn more, contact us today!

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