Some businesses in corporate America are not happy about a new rule that can alter the relationship between employers and their employees.
After the Federal Trade Commission voted on April 23 to ban employers from forcing employees to sign non-compete agreements, which blocks an employee from working with their employer’s competitors after resigning, the U.S. Chamber of Commerce and several other organizations that represent large businesses have filed a lawsuit against the commission to stop the effort, arguing that non-competes are “mutually beneficial.”
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Non-compete agreements are contracts that not only restrict an outgoing employee from joining a new company that is a competitor of their previous employer, but the agreement can even stop employees from starting a competing business.
The agreements can typically last for a few months to a year and can have the ability to ban the employee from even working in a certain geographic area.
The FTC proposed the rule to ban non-competes last year in January, and it not only aims to block employers from issuing new non-compete agreements, but it also makes existing ones “enforceable,” except for non-competes for senior executives.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina Khan in a press release. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Businesses fight noncompete ban
Now, in a lawsuit, which was filed on Feb. 24 in Texas, businesses are arguing that the FTC’s proposed ban is “unlawful” and claims that the commission has “no authority to issue the rule.” It also states that non-competes are not one-sided and can be beneficial for both businesses and employees.
“These agreements benefit employers and workers alike — the employer protects its workforce investments and sensitive information, and the worker benefits from increased training, access to more information, and an opportunity to bargain for higher pay,” reads the lawsuit.
The business groups also claim in the lawsuit that the ban on the agreements can have consequences as businesses would be forced to explore “inadequate and expensive alternatives” to protect their sensitive information.
“By invalidating existing noncompete agreements and prohibiting businesses and their workers from ever entering into such agreements going forward, the rule will force businesses all over the country — including in this District — to turn to inadequate and expensive alternatives to protect their confidential information, such as nondisclosure agreements and trade-secret lawsuits,” reads the lawsuit. “And many workers, including highly-skilled experts and executives, will be unable to bargain for increased compensation in return for a noncompete agreement.”
The lawsuit aims to obtain a court order that will toss out the proposed ban.
Non-compete agreements are common in the workforce as roughly 1 in 5 American workers are bound to a non-compete clause, according to the FTC.
The decision to ban non-competes in the workplace has Americans divided on the issue. A survey from market research company Ipsos last year found that only 61% of Americans support the FTC’s ban on non-competes, while 31% oppose the effort.
The survey also found that 41% of employed Americans are more likely to look for a new job in the next three months if the ban became official, while 11% said they were less likely to.
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