The Federal Trade Commission last week issued a final rule that bans the use of non-compete agreements nationwide. The ban includes both prospective and existing non-compete agreements.
According to the FTC, the ban will affect about 30 million American workers subject to non-compete agreements. In addition, existing non-compete agreements for “senior executives” can remain in place, although no new non-competes are permitted even with respect to senior executives.
Employers are required to notify employees who are not senior executives and who are subject to non-compete agreements that they will not be enforcing those agreements.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the FTC’s complete ban on non-compete agreements.
Below is a summary of the debate that ensued between the two professors.
Bloink: The use of non-compete agreements severely limits the ability of employees to choose where they will use their skills. Unfortunately, outside of the upper-level-executive context, it’s almost always the employer who has all of the bargaining power.
Most of the time, the employee has no choice but to sign the agreement in order to keep their jobs — that’s simply not a fair way to execute a contract. Employees are prohibited from seeking out higher pay, from forming new businesses or bringing new ideas into the labor market.
Byrnes: We all know that there are legitimate reasons why employers use non-compete agreements. Businesses must be able to protect their confidential information when employees change jobs.
The use of non-compete agreements is critical to enforcing an employer’s right to keep confidential information private. This sweeping ban is far too broad to be considered fair.
Bloink: Business owners still have options keeping information private. Many non-compete agreements contain all-out bans prohibiting employees from working within the same industry.
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These types of bans essentially force the employee to stay employed with the same employer — or start a new career in a different industry.
At the same time, the non-compete doesn’t prohibit the employer from firing the employee — putting the employee in an extremely unfair position. Non-disclosure agreements are a far more equitable option for protecting trade secrets.
Byrnes: Non-disclosure agreements are simply not sufficient to prevent former employees from leaking secrets to competitors when they decide to work for a competitor.
Businesses should be able to confidently provide employees with the information they need to effectively perform their duties without worrying that the employee will change course and go work for a competitor.
Employers often spend years training employees on certain methods and skills — a non-disclosure agreement does nothing to prevent the employee from taking those valuable tools to a competitor. There simply have to be situations where a non-compete can be enforceable.
Bloink: An across-the-board ban of non-compete agreements avoids any confusion on whether a particular non-compete will be enforced — especially today, where many employees are still working remotely and may not even be in the same state as their employer.
This eliminates the patchwork approach of state-by-state legislation on the issue.
Byrnes: The FTC’s sweeping, nationwide ban on non-competes was challenged in court almost immediately after it was released — and it will almost certainly be struck down by the courts.
The ban is simply so overly broad that there is no way that the courts are going to allow it to stand.
