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The federal government’s plan to ban noncompete clauses

On Behalf of | May 18, 2023 | employment contracts |

Ideally, anyone should be able to choose which companies they’d like to work for without limit. However, the truth is that some companies aren’t too keen about having their employees leave them for the competition. They might resort to adding noncompete clauses to an employee’s contract. These clauses can prevent workers from joining businesses in direct competition with the company or even outright stop employees from starting a similar business.

While some employers would argue that noncompete clauses allow them to protect their trade secrets, the measures also prevent workers from leaving their jobs. The clauses can also lock skilled workers away from a talent pool.

Even the Federal Trade Commission (FTC) has recognized how unfair noncompete clauses are for employees. According to the agency, about 30 million Americans are bound by such clauses, which prevents them from choosing alternative job opportunities.

The FTC proposed a rule banning noncompete clauses earlier this year to address this. The agency hopes that by prohibiting the covenants, American wages will increase by nearly $300 billion annually.

States with existing noncompete bans

While the FTC’s proposed rule is making waves across the country, some U.S. states have already banned noncompete clauses – with some exceptions. These states include California, Oklahoma, North Dakota, and the District of Columbia. Other states prohibit noncompete clauses for workers below a certain wage level. Jurisdictions that practice this include Colorado, Maryland, Illinois, New Hampshire, Rhode Island, Washington State, Oregon, and Virginia.

Until the FTC’s new rule passes, other states such as Pennsylvania must wait before employees can apply for whatever job they wish without limits. New employees concerned about such covenants may want an attorney to review their employment contracts. Noncompete clauses can be hidden among the complex legalese in a contract, so it’s best to have an attorney single out such clauses.