FTC Proposes Ban on Noncompete Clauses

By Colleen Beaty | Feb 2, 2023
people signing a contract

On Jan. 5, 2023, the U.S. Federal Trade Commission (FTC) issued a proposed rule that would ban the inclusion of noncompete clauses in employment contracts.

On Jan. 5, 2023, the U.S. Federal Trade Commission (FTC) issued a proposed rule that would ban the inclusion of noncompete clauses in employment contracts.

The notice of proposed rulemaking (NPRM) argues that noncompete clauses violate the Federal Trade Commission Act because they embody an “unfair method of competition.” The rule would prohibit employers from entering into or maintaining a noncompete clause with a worker or indicating that a worker is subject to a non-compete clause.

The FTC defines a noncompete clause as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” 

In a Jan. 5 press release, FTC chair Lina M. Khan said, “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.”

The NPRM broadens the definition of noncompete clauses to sometimes include nondisclosure agreements or other types of restrictive employment covenants. Although these types of covenants would not usually be considered noncompetes, they would be covered by the proposed rule in cases “where they are so unusually broad in scope that they function as such.”

Fortunately, the proposed rule does not apply to JATCs with which NECA/IBEW has a collective bargaining agreement, and it would not affect the way JATCs have been operating under the FTC Packers and Stockyards Act.

However, this proposed rule could affect recruiting in the electrical contracting industry. The rule would allow for contractors to recruit new talent such as estimators, project designers and other in-demand jobs. This may result in businesses seeing their own employees leaving for other opportunities.

 According to Jared Karbowsky, NECA’s director of government affairs, “The rule would not impact or affect the IBEW workforce. However, it will still pose major issue in terms of retaining talent for our in-house employees for NECA contractors.”

The proposed rule is expected to 30 million (18%) of U.S. workers. In addition to banning new noncompete clauses, it would apply retroactively, meaning employers would be required to rescind all existing noncompete clauses within 6 months of the rule taking effect and communicate that to current and former employees. 

The FTC is accepting comments on the NPRM until March 10, 2023.

About The Author

Colleen Beaty

Senior Editor

Colleen Beaty is senior editor at ELECTRICAL CONTRACTOR magazine. She has been writing about topics such as outside line work, wildlife and habitat conservation for more than 15 years. Reach her at [email protected].

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