By Page Skinner
When you are going through onboarding for a new job, you may come across a non-compete clause in your employment paperwork. A non-compete clause “prevent[s] workers from working for ‘competitor’ companies during or after their current employment.”[1] There are several ways in which employers can limit employees when they agree to abide by a non-compete clause, which includes geographic restrictions, industry restrictions, and time bar restrictions.[2] While non-compete agreements are prevalent in many industries, they are especially common in the technology industry.[3] Because of this, many technology experts are weighing in on how the FTC’s proposed rule will impact the technology field if it is approved.
So, what is the FTC’s proposed rule? Under the FTC’s proposed rule, it would be illegal for an employer to: “enter into or attempt to enter into a non-compete with a worker; maintain a noncompete with a worker; or represent to a worker, under certain circumstances, that the worker is subject to a non-compete.”[4] Additionally, another notable aspect of the rule is that it would require employers to terminate any existing non-compete agreements they have in effect and give the employees who originally signed on to them notice that they are no longer in effect.[5] The FTC argues that this proposed rule would increase employee wages by nearly $300 billion per year and provide new employment opportunities to the 30 million employees who are currently under a non-compete agreement.[6] The FTC is currently seeking public comments on the rule through March 20, 2023.[7]
Proponents of non-competes for technology companies hold the position that the proposed rule could come with significant ramifications, as the non-competes are meant to protect those companies’ innovations, which are highly valuable in the technology field.[8] They argue this change could “cause harm to a company’s legitimate business interests, such as the need to protect confidential information and innovations.”[9] Further, they advise technology companies to look into how they can utilize other forms of contracts, like non-disclosure agreements, in case the proposed rule goes through so they can protect their businesses.[10] In the meantime, it is likely that technology companies will take advantage of the comment period and express their concerns with the proposed rule in an attempt to protect their interests.[11]
Opponents of non-competes focus more on the employees rather than the businesses that are issuing the agreements.[12] They state that competition for an employee’s labor is the “most fundamental bargaining power” an employee has, and non-compete agreements take that power away from employees. This taking away of power, they argue, places a chilling effect on the workers by limiting their mobility, stifling innovation, and negatively impacting wages.[13] Technology companies such as Amazon, Microsoft, and IBM have taken legal action against former employees who have breached their non-competes, which they argue further chills the employees looking to leave their current workplaces if they are confined by an agreement.[14]
While the FTC’s proposed rule to ban non-competes seems to heavily favor employees, some argue that it can also benefit employers.[15] Taking away non-compete clauses in employment contracts will make it easier for employees to leave workplaces, which means more talented and knowledgeable employees will be available on the job market.[16] Without the restriction of a non-compete, it will get rid of the red tape that employers sometimes have to work through and allow them to retain talented employees that they may not have otherwise been able to retain.[17] However, in order to see if any of these impacts will be felt by employers and employees alike, the rule will have to make it through the rulemaking process and withstand any and all legal challenges that are thrown its way.[18] For now, we will just have to wait and see what happens.
[1] Najah A. Farley, FAQ on Non-Compete Agreements, Nat’l Employment Law Project (May, 2022), https://s27147.pcdn.co/wp-content/uploads/Fact-Sheet-FAQ-Non-Compete-Agreements-May-2022.pdf.
[2] Id.
[3] Mitchell Clark, The FTC wants to ban the noncompete clauses ensnaring some tech workers, The Verge (Jan. 5, 2023, 4:02 PM), https://www.theverge.com/2023/1/5/23540953/ftc-noncompete-ban-proposal.
[4] FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition, Fed. Trade Comm’n (Jan. 5, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition.
[5] Id.
[6] Id.
[7] Id.
[8] Kate E. Gehl & Thomas R. Hutchinson, What the FTC’s Proposed Ban on Employee Noncompete Agreements Could Mean for the Technology Industry, Foley (Jan. 26, 2023), https://www.foley.com/en/insights/publications/2023/01/ftc-proposed-ban-employee-noncompete-tech.
[9] Id.
[10] Id.
[11] Clark, supra note 3.
[12] See Megan Rose Dickey, Tech’s non-compete agreements hurt workers and anger some lawmakers, protocol (May 13, 2021), https://www.protocol.com/policy/tech-non-compete.
[13] Id.
[14] See id.
[15] Tom Spiggle, Why The FTC’s Proposed Rule Banning Non-Competes Is Good For Workers, Forbes (Feb. 14, 2023, 5:15 AM), https://www.forbes.com/sites/tomspiggle/2023/02/14/why-the-ftcs-proposed-rule-banning-non-competes-is-good-for-workers/?sh=4edf967a5fca.
[16] See id.
[17] See id.
[18] Id.
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