Are noncompete agreements on their way out?

Noncompete agreements have been a hotly debated topic recently. Now, the future of these agreements could be in limbo as the Federal Trade Commission (FTC) has proposed a new rule that would bar employers from using these clauses.

The case for banning noncompete agreements

The FTC and those in support of this ban say that noncompete agreements are detrimental to employees in several ways, including:

• Restricting employees from starting new businesses
• Hampering innovation
• Exploiting workers
• Supporting low wages

Traditionally, employers used these agreements to protect their businesses when employees left their companies. For instance, employers would bar former employees with valuable insights into their company from using their knowledge at their new place of employment to compete unfairly against them.

Valid noncompete agreements generally protect legitimate business interests and restrict key employees from working for a competitor or starting a competing company for a specific time.

However, in recent years, we have seen a dramatic increase in the use of these type of agreements. It is estimated that as many as one in five workers have a noncompete agreement in place. However, many of these workers have no specialized knowledge of a business and countless workers do not even realize they have signed a noncompete agreement.

As a result, there are millions of workers struggling to find work and secure higher wages by getting a new job.The FTC is responding to this by proposing a ban on noncompete agreements with certain employees and contractors. The rule would also require employers to cancel existing noncompete agreements.

Critics of the ban and alternatives

Not surprisingly, the matter is under debate. Some fear that banning noncompete agreements would expose businesses to the loss of valuable assets like intellectual property and trade secrets.

Further, some say that a complete ban on noncompete agreements goes too far and that the ban on noncompete agreements should be limited to specific situations. For example, having an office worker or a housekeeper sign a noncompete agreement may not be necessary, but having the Chief Executive Office of a biotech firm enter into a noncompete agreement could be reasonable.

What do you think? Should the FTC ban noncompete agreements?