Employers have been using non-compete clauses for years to protect their businesses. A proposed rule change by the Federal Trade Commission (FTC) could put an end to that once and for all.
The FTC released the draft of their proposal in January of this year and asked for comments. It’s thought that lawmakers will vote on the proposal in 2024. The FTC estimates banning them altogether would boost wages by between $250 and $296 billion and help millions of workers.
Banning non-competes is nothing new
Non-competes are already illegal in several states. Yet, there is likely to be fierce opposition from many industry groups as well as a lot of support for the change from those representing employees.
Why it is such a contentious issue
Sometimes an employer is heavily dependent on keeping certain knowledge secret from competitors and if an employee were to take that knowledge to a competitor, or use it to set up in competition themselves, it could do serious harm to their original employer. While many are sympathetic to this, others would argue that the country needs to be encouraging competition, not stifling it.
Part of the problem is that some employers have become too wide-sweeping in their use of non-competes. They ask everyone from the janitor to the doorman to sign them when they really do not need to. They can also be far too restrictive, making it incredibly hard, if not impossible for an employee who wants to leave to do so without needing to change career completely.
There are other forms of protection available to companies
Employers will still have other options, such as non-disclosure agreements to protect their secrets. You could look at it as protecting the knowledge rather than restricting the individual.
Whatever the outcome of any eventual vote on the FTC’s proposal, it’s wise to get help when assessing how best to protect your information and competitive advantage. Michigan currently allows non-competes, but only in a limited scope, and there are proposals afoot to restrict them further, regardless of any federal intervention. It’s also worth remembering that you probably do not want employees who are still with you only because they cannot leave due to an agreement they signed.