The Federal Trade Commission (FTC) proposes banning non-compete clauses. According to the agency, these contractual agreements are often exploitative practices that suppress wages and stifle innovation. Additionally, the contracts block people from seeking new employment or starting new businesses.
Moreover, the Commission’s new rule would prevent employers from entering into these agreements with workers. The proposed change would also require employers to rescind existing non-compete contracts. As a result, the FTC believes it would help approximately 30 million workers, increasing earnings between $250 and $296 billion yearly. Furthermore, researchers estimate that banning non-compete agreements may close racial and gender gaps by 3.7%.
FTC Chair Lina M. Kahn explained the proposal’s purpose: “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy. However, non-competes 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.”
States’ Non-compete Laws
Several states have either tightened laws surrounding non-competes or banned them outright. In addition, five states and the District of Columbia passed legislation to limit such agreements’ use.
Additionally, 18 states have proposed or pending legislation. State laws vary significantly. California, North Carolina, Oklahoma, and Washington D.C. ban non-compete clauses with a few exceptions.
Conversely, Colorado, Illinois, Maine, Maryland, New Hampture, Oregon, Rhode Island, Virginia, and Washington allow non-compete agreements for individuals earning above a certain salary. For example, Oregon. Beginning in 2022, an employee’s annual salary must be at least $100,533 for such agreements to be valid. Other states limit non-competes to be used in certain professions, such as healthcare workers.
Written by Cathy Milne-Ware
Federal Trade Commission: FTC Proposes Rule to Ban Non-compete Clauses, Which Hurt Workers and Harm Competition
Workest: Oregon Tightens Requirements for Non-compete Agreements; by Lisa Burden
Dorsey & Whitney LLP: Non-competition Agreements under Scrutiny at State and Federal Level
NOLO: Understanding Non-compete Agreements; by Lisa Guerin, J.D.