Right now, noncompete agreements are still legal as long as they are set up properly. An employer can ask an employee to sign a noncompete, stating that they won’t leave the business to start a competing company or join the competition. These agreements do have to be written correctly – they often have to have a geographical scope and a time limit, for example – but they can be used.
However, employers need to be aware that this may be changing. The Federal Trade Commission would like to ban noncompete agreements, and it has recently proposed a new rule that would do so. It will be very important to keep an eye on this process to see if the ban goes through, meaning that the FTC would not allow employers to use noncompete agreements moving forward.
The impact on workers’ earnings
The reason that the FTC gives for this proposed ban is that they think it is repressing workers’ earnings. They claim that workers may earn around $300 billion more every year if they weren’t bound by these noncompete agreements.
Employers may want to use these agreements simply to protect intellectual property and trade secrets, keeping employees with their company instead of allowing them to jump ship and take their knowledge with them.
But the reality is that this means workers also have limited options to seek other employment. If a worker wants to get a raise but the company doesn’t allow it, they may feel that they don’t have any other options to seek higher wages elsewhere if they signed a noncompete.
Once again, this ban hasn’t gone into effect yet. But it’s very important to keep an eye on it moving forward, as employers and employees need to understand their legal rights.