US trade agency proposes ban on noncompete clauses News
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US trade agency proposes ban on noncompete clauses

The US Federal Trade Commission (FTC) Thursday proposed a new rule which would ban employers from imposing noncompetition clauses onto their workers. The new rule defines a noncompete clause as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”

The FTC claims that the proposed ban of noncompetition clauses would promote healthy competition and innovation throughout the US. The ban would apply to all workers in the US, regardless of whether they are an independent contractor or an unpaid volunteer. It would also require employers to rescind all existing noncompetition clauses and inform employees about the policy change. The FTC also expressed concern that noncompetition clauses are suppressing wages, hampering innovation and blocking entrepreneurs from starting new businesses.

FTC Chair Lina Khan released a statement in support of the proposal, claiming:

Noncompetes may be unlawful in different contexts for different reasons; for example, employers’ use of noncompetes to bind low-wage workers may be coercive and unfair in ways that the use of noncompetes to bind senior executives is not. Still, the proposal concludes that, in the aggregate, employers’ use of noncompetes undermines competition across markets in ways that are harmful to workers and consumers and warrant a prohibition.

The proposed rule is currently open for public comment, with comments accepted until early March.