Recently, the Federal Trade Commission (FTC) suggested banning noncompete terms in employment contracts. Noncompete provisions are contracts between employers and employees that forbid the employee from joining rival companies in the same sector for a predetermined amount of time. The idea was approved by the FTC by a 3-1 vote, and the public will now have 60 days to comment on it.
FTC Chairwoman Lina Khan, who thinks noncompete clauses are detrimental to the labor market, was the driving force behind the idea. She contends that they restrict employees’ freedom to change employment and prohibit companies from finding qualified candidates. Dynamism, innovation, and healthy competition are all stifled by this. Therefore, by prohibiting the use of noncompete terms in employment contracts, the plan seeks to oppose the suppression of these qualities.
However, Khan’s idea is not without its detractors. Business associations have maintained that noncompete agreements assist them safeguard their intellectual property and trade secrets. They worry that without them, their rivals may profit from their investments and labor of love. These organizations have also expressed worry that prohibiting noncompetes may promote poaching because employees may be enticed to leave for a position with a greater salary and steal their former companies’ trade secrets.
The proposal is still in its early stages, and the public will have the opportunity to share their views on the matter over the next 60 days. It remains to be seen whether the FTC will be successful in their efforts to promote dynamism, innovation, and healthy competition by banning noncompete clauses in labor contracts.