Changing jobs can often be the key to securing a salary increase. However, many employers require employees to sign noncompete clauses, which can hinder their ability to pursue better job opportunities and artificially suppress wages.
Fortunately, a significant change is on the horizon.
Recently, the Federal Trade Commission (FTC) introduced a new rule that deems most noncompete clauses in employment contracts as unfair. This rule prohibits employers from mandating workers to sign these agreements and bars the enforcement of existing noncompetes for all workers except senior executives.
This development marks a crucial step toward promoting fair competition and empowering workers.
Noncompete agreements are contractual provisions that restrict employees from working for or starting a competing business for a certain period after leaving their job. They are widespread, with more than a quarter of private-sector workers being required to sign them as a condition of employment, according to the Economic Policy Institute.
These agreements are not exclusive to high-wage workers in specialized fields. In fact, a significant portion of low-wage workplaces utilize noncompete agreements for all employees.
For non-union workers, the ability to quit and pursue other job opportunities is often their only leverage against employers. However, noncompete agreements undermine this leverage.
Research shows that noncompetes not only depress wages but also stifle the creation of new businesses by preventing workers from exploring better opportunities. Moreover, these agreements are unnecessary for protecting trade secrets, as existing intellectual property laws already offer significant safeguards.
In many cases, noncompete agreements are paired with other anti-competitive practices that further disadvantage workers. For example, a substantial portion of firms requiring noncompetes also compel employees to agree to mandatory arbitration, bypassing the traditional court system.
Ultimately, noncompetes serve to restrict competition and harm workers, consumers, and the economy as a whole. By outlawing these agreements, the FTC’s rule will contribute to higher wages for workers and promote an economy that prioritizes the interests of working people.
