The US Federal Trade Commission has proposed a new rule that would prohibit employers from imposing non-compete obligations on their employees. Supporters of the rule say non-competition clauses are a widespread and often exploitative practice that suppresses wages and hampers innovation. Kenneth Dau-Schmidt, a professor of labor and employment law at Indiana University, says current estimates suggest that about 20% of American workers are covered by NCAs.
In an interview with the Associated Press, Dau-Schmidt said the proposed rule could make it easier for people to change jobs and deepen competition for workers in a variety of industries.
“Our American economy is based on the idea that everyone competes. Employers have to compete for employees. And this rule tries to keep that competition going,” said Dau-Schmidt.
Dau-Schmidt says non-competition clauses should protect companies when a senior executive or researcher with access to sensitive information leaves a company. However, he says employers have adopted NCAs more broadly in recent years.
“We’ve seen cases where they’ve been used with sandwich makers, we’ve seen cases where they’ve been used with janitors, security guards and even unpaid volunteers or interns, which is amazing,” Dau-Schmidt said.
He says nearly 50% of the American workforce will be affected by a non-compete clause at some point in their careers.
“And that is starting to have a negative impact on our labor markets. When people are covered by non-competition. It restricts which jobs they can apply for and restricts whether other employers will look at them. As a result, they have fewer chances,” added Dau-Schmidt.
The FTC is inviting public comments on the proposed rule, which will give stakeholders such as business groups 60 days to provide feedback to the agency.
The comment period runs until March 10th.
“They have already made some comments that they believe this rule exceeds the powers of the Federal Trade Commission,” Dau-Schmidt said.
He expects the FTC to make some adjustments. For example, Dau-Schmdit says they could impose non-competition bans on employees who make less than $100,000 a year.
“And then they would also apply a ‘rule of common sense’ to employees, which means that the employer would have to prove some legitimate interest and this is required,” explained Dau-Schmidt.
Click here to learn more about the proposed rule.