Non-compete agreements often prohibit workers from leaving a job and taking another in the same industry, usually within a certain time frame, geographic area or both. Proponents argue these agreements help protect trade secrets, prevent employees from stealing clients as well as increase employers’ willingness to invest time and money to train and develop workers’ skills.
Traditionally, they have been applied to high-paid employees like executives, research personnel and physicians. But lately, such agreements have been applied to much-wider swath of workers: about one in five, according to the Federal Trade Commission. They've been included in contracts for lower-paid workers like sandwich makers and janitorial workers.
A majority of the FTC’s commissioners object to these agreements and have proposed a rule banning them across all industries in the U.S. They and other opponents argue non-competes stifle competition, hurt communities and increase costs. Extrapolating based on one study, FTC commissioners estimate that consumer spending on health care could decrease by almost $150 million nationally if non-competes were banned.
But critics, including the FTC’s one dissenting commissioner, argue the economic studies of the impacts banning non-competes are more “mixed” than the ban’s supporters present.
The FTC proposed rule is open to public comment through March 20, 2023 before commissioners attempt to finalize it. Depending on the rule’s final form, it will likely face legal challenges.