The Federal Trade Commission recommends a new regulation that would stop businesses from requiring noncompete clauses for employees that forbid them from joining a competitor after leaving the company, often for a set amount of time.
The executive order issued by President Joe Biden in 2021 to address anticompetitive behaviors in the IT, healthcare, and other sectors of the economy is followed by the proposed rule announced on Thursday.
To assist in raising salaries, the order included a request to reduce or outright prohibit noncompete agreements.
A preliminary conclusion that noncompete agreements stifle competition in violation of Section 5 of the Federal Trade Commission Act forms the foundation of the FTC proposal.
Unfair business practices are prohibited by Section 5.
Chair Lina M. Khan stated in a prepared statement that “noncompetes hinder workers from freely switching employment, depriving them of higher earnings and better working conditions, and depriving businesses of a talent pool they need to create and expand.”
The proposed rule would make it unlawful for an employer to establish or seek to establish a non-compete agreement with a worker, to maintain the such agreement, or to falsely represent to a worker that the worker is subject to a non-compete agreement.
It would cover independent contractors and anyone who performs paid or unpaid work for an organization.
Additionally, it would call for employers to actively notify staff members that any noncompete agreements already in place have been terminated.
Other employment restrictions, such as non-disclosure agreements, would typically not be included in the proposed regulation, but they might be if they are so expansive as to serve as noncompete clauses.
According to the EPA, the new proposed regulation could increase annual salaries by nearly $300 billion and open up more job prospects for around 30 million Americans.