by The FTC is proposing a new rule that would forbid the agreements, but it wants to hear from the public on the issue
In all the years I’ve reported on the home furnishings sector, I’ve lost count of the number of executives that were sidelined from taking new positions because of tough noncompete agreements that hung over their heads like the proverbial sword of Damocles.
Fans of noncompetes will tell you that they can protect a company, its intellectual property and trade secrets as well as prohibit former
employees from using elements of those secrets and properties to compete against you.
They would also probably argue that having key employees sign a noncompete may keep them on your team longer than had they not signed one.
Those against noncompetes will tell you that they can be limited in scope, restrictive to the employee, can create a negative company
environment, and can also be very expensive to enforce in the event a company chooses to litigate.
Earlier this month, the Federal Trade Commission made it clear what it thinks about the value of noncompetes: Not much at all.
The FTC has recently proposed a new rule that, if adopted, would forbid employers from making employees sign one. The commission is asking for the public’s opinion on its proposal to declare that noncompete clauses are an unfair method of competition, and on the possible alternatives to this rule that the commission is proposing.
According to the FTC, almost one in five U.S. workers — which it says represents some 30 million workers — are being restricted from finding better job opportunities because they are currently bound by noncompetes.
In its statement, the FTC proposes preventing employers from entering into noncompete clauses with workers and requiring employers to rescind existing noncompete clauses on the belief that “because noncompete clauses prevent workers from leaving jobs and decrease
competition for workers, they lower wages for both workers who are subject to them as well as workers who are not.”
It also argues that “noncompete clauses also prevent new businesses from forming, stifling entrepreneurship, and prevent novel innovation which would otherwise occur when workers can broadly share their ideas.”
Looking at this issue in terms of dollars, the FTC estimates that “the proposed rule would increase American workers’ earnings between $250 billion and $296 billion per year.
To address these problems, the FTC’s proposed rule seeks to by and large stop employers from using noncompete clauses.
Under the FTC’s proposal, it would be against the law for an employer to enter into or try to enter into a noncompete scenario with an employee as well as attempt to maintain a noncompete with an employee.
The rule, as proposed, would also impact independent contractors and would further require employers currently using and requiring
noncompetes to rescind them.
In case you’re thinking this is just more warm-and-fuzzy political speak, think again.
Under scrutiny and pressure from the government, two of the largest domestic glass container makers — O-I Glass and Ardagh Glass S.A. — agreed to do away with their noncompete agreements, which sources say impacted almost 1,800 workers.
Soon after, affiliated companies Prudential Command and Prudential Security Inc. each agreed to scrap their noncompete language in their employments.
Make no mistake — 2023 will be a year of major changes, so stay tuned. Now that I’ve shared what I know about noncompetes, I want to know what you think.
Should noncompetes go away, will that be a help or hindrance for home furnishings?
