FTC proposes ban on non-compete clauses in employment contracts
PITTSBURGH (KDKA) - The Federal Trade Commission on Thursday proposed a new rule that would ban so-called "non-compete" clauses in employment agreements.
As KDKA money editor Jon Delano explains, this could be a significant change in the way many employers hire skilled and talented workers.
What exactly is a non-compete?
"A non-compete is an agreement that prevents a worker from working for certain other employers for a period of time," says attorney Christine Elzer, who represents employees.
Generally, some companies require non-competes to keep their employees – even if fired – from working for a competitor.
Some states outlaw them, but not Pennsylvania, says Elzer.
"In Pennsylvania, they're enforceable, and I will say even when they are not enforceable, the chilling effect is there."
The FTC proposed a rule to ban all non-competes, even those already in contracts, saying it undermines economic liberty and a person's right to switch jobs.
Attorney Jaime Tuite, who represents employers, says such a broad prohibition will defeat the purpose of non-competes.
"They help to protect confidential proprietary information, says Tuite.
Most Americans think they should be free to quit a job and work in the same profession on their own or for a competitor, but one out of five workers has a non-compete clause to limit their ability to do that.
That, employers say, protects proprietary company information.
"For them to take all of that know-how, your trial and error, and then go across the street and set up shop and get the benefit of your hard work seems very anti-competitive to me," says Tuite.
Tuite says the FTC rule to outlaw all non-compete clauses, even those already in existing contracts, will hurt many local companies.
"The broad and sweeping nature of the proposed regulation as well as the impact it will have in the marketplace will be very detrimental to employers," she says.
"They hurt employees a lot. They trap them in jobs they might not be happy in for various reasons," says Elzer.
"It really stifles competition in general. It stops innovation. It stops people from leaving their employers and starting their own businesses."
Elzer says even she was surprised at the breadth of the proposed FTC rule, making it retroactive.
"It means it goes back in time, so that even if you entered into a non-compete twenty years ago, if this rule passes, that non-compete is no longer valid, and the employer has to tell you so."
Now this is just a proposal. The public has 60 days to comment, and a final rule would not take effect until six months after it's published.
