FTC to Ban Non-Competes?

Once upon a time I had more than a passing interest in this subject. In Indiana, if we can rely on my wayward memory, noncompetes must be for a limited time, limited area, and serve a business necessity such as protecting client bases. I would have not tried defending one where the employee did nothing more than roll sandwiches.

FTC prepares to ban ‘noncompete agreements’ – what they are and why low-wage workers are increasingly required to sign them 

Most American workers are hired “at will:” Employers owe their employees nothing in the relationship except earned wages, and employees are at liberty to quit at their option. As the rule is generally stated, either party may terminate the arrangement at any time for a good or bad reason or none at all.

In keeping with that no-strings-attached spirit, employees may move on as they see fit – as record numbers of have done during the “great resignation” – unless, that is, they happen to be among the tens of millions of workers bound by a contract that explicitly forbids getting hired by a competitor. These “noncompete clauses” may make sense for CEOs and other top executives who possess trade secrets but may seem nonsensical when they are applied to low-wage workers such as draftsmen in the construction industry. A 2019 business survey found that 29% of companies paying an average wage of less than US$13 an hour required all their employees to sign noncompete agreements.

President Joe Biden seems to agree about the oppressive nature of noncompete contracts. After he pressed the Federal Trade Commission to ban or limit them in 2021, the agency said on Jan. 5, 2023, that it plans to do just that. The FTC estimates that banning noncompetes could lift worker wages by nearly $300 billion per year.

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“By locking low-wage workers into their jobs and prohibiting them from seeking better-paying jobs elsewhere, the companies have no reason to increase their wages or benefits,” former Illinois Attorney General Lisa Madigan said when she sued the Jimmy John’s fast-food franchise in 2016 for making its employees sign noncompete clauses.

The chain subsequently agreed to drop its noncompetes, which had also come under fire in New York. The clauses had barred the sandwich-maker’s workers from working for other companies that earn more than 10% of their revenue from “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” for two years after leaving the Jimmy John’s payroll.

Going back, again, to the past, then I wanted to tout the use of garden leave. That originated out of England. The idea is an employee is paid not to work for a period of time, rather than being restricted from working in a particular area for a specific time in a designated industry. It appears now to have gotten use in America.

For another view: What is Garden Leave?

sch 1/9/23