The Federal Trade Commission (FTC) has proposed a new rule that would ban employers from imposing noncompete clauses on workers. The proposed rule is based on the FTC’s preliminary finding that noncompete clauses constitute an unfair method of competition, which is in violation of Section 5 of the FTC Act.
Noncompete clauses, as described by the commission, can be a “widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The commission estimates that stopping the practice of noncompete clauses could increase wages by almost $300 billion per year and create new career opportunities for 30 million Americans.
Under this proposed rule, it would be illegal for employers to enter into or attempt to enter into a noncompete with a worker; maintain a noncompete with a worker; or represent to a worker, under certain circumstances, that the worker is subject to a noncompete.
“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.”
For direct selling companies, this ban would mean corporate leaders would have to give their blessing to independent distributors who want to represent more than one company at a time—an already common practice that is not always company sanctioned.
