Have strong opinions on noncompete clauses? Now’s your chance to make your voice heard.

The Federal Trade Commission (FTC) has proposed a new rule that, if enacted, would prohibit employers from imposing noncompete clauses on workers. Independent contractors and even unpaid interns would be covered by the rule, too.

Professionals and companies in the promotional products market, along with all other industries, are invited to submit their thoughts on the proposal during a public comment period that lasts until March 10.

The FTC said it’s considering banning noncompetes following a preliminary finding that indicates the arrangements are an unfair method of discouraging competition that violates Section 5 of the Federal Trade Commission Act.

The federal trade regulators estimate that by halting the practice of noncompetes, wages will rise by $300 billion annually across the United States’ economy. Career opportunities would expand for about 30 million Americans, or 18% of the U.S. workforce, who are currently estimated to be covered by noncompetes, the FTC said.

Infographic courtesy of the FTC.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina M. Khan. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation and healthy competition.”

What’s Proposed in Particular?

A noncompete clause essentially prohibits one party (a worker, contractor, etc.) from taking another job or starting a business in a similar profession that competes against another party (the employer).

The FTC’s proposal would make it illegal for employers to: enter into or attempt to enter into a noncompete arrangement with a worker; maintain a noncompete with a worker; and/or represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

Companies that have noncompetes in place would be required to rescind them and inform workers that they are no longer subject to the restrictive clause, under the FTC rule.

Generally speaking, the proposed rule would not apply to other types of employment restrictions, like nondisclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompetes, the FTC said.

“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages – even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, the FTC’s director of the Office of Policy Planning. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”

Court Battles Could Lie Ahead

If the FTC approves the proposed ban, expect court challenges.

“Attempting to ban noncompete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition,” Sean Heather, the U.S. Chamber of Commerce’s senior vice president for international regulatory affairs and antitrust, told CNBC.

A full ban on noncompetes is “blatantly unlawful,” Heather added. “Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.” 

The FTC proposal has received criticism from others too, including The Wall Street Journal Editorial Board, which called the potential ban “an air kiss to Big Labor.”

“Job mobility in America hasn’t suffered despite noncompete clauses,” The WSJ Editorial Board argued. “The biggest threat to rising wages is inflation, not employment clauses. Companies use noncompete clauses to protect their intellectual capital, which is often between the ears of its employees.”