DO YOU USE NONCOMPETE CONTRACTS WITH YOUR STAFF?
The Federal Trade Commission has banned employers from using noncompete contracts to prevent most workers from joining rival firms. The rule prohibits companies from enforcing existing noncompete agreements on anyone other than senior executives. It also bans employers from imposing new noncompete contracts on senior executives in the future.
FTC Chair Lina Khan said the rule restores rights to Americans that corporations have taken by imposing noncompete clauses in the workplace. “Robbing people of their economic liberty also robs them of all sorts of other freedoms,” she said. Noncompete clauses violate a 110-year-old law that prohibits unfair methods of competition, the FTC says. The restrictions hamper competition for labor, the agency says, and result in lower pay and benefits for workers. The practice has grown more prevalent and now affects nearly 1 in 5 American workers. Even lower-wage workers such as restaurant employees and hair stylists, who lack access to intellectual property or trade secrets, have been subject to them. The practice has increased and now affects nearly 1 in 5 U.S. workers.
For example, Sabrina Parris, a tax consultant in Hickory, N.C., signed a noncompete agreement early in her career that blocked her from working with former clients if she left her then-employer, an accounting firm. When she departed, hoping to start her own business, the employer reminded her of that contract, she said. After she started the company, which helped small businesses with tax compliance, she turned down former clients when they reached out. “I told them I couldn’t work with them, and that they were in good hands and should stay where they were,” said Parris, who said she also was an Uber driver on nights and weekends to supplement her income. “The noncompete scared me a little.”
Banks and credit unions are exempt from FTC regulation and would be able to keep using noncompetes, giving them an advantage over other financial firms subject to the restriction. Nonprofit healthcare employers also are exempt from the rule’s reach.
