Business News

FTC’s new rule could end noncompete agreements for millions of workers

Empty Table And Chair Against Window At New Workplace
Maskot/Getty Images

(NEW YORK) — For nearly four years, Arizona realtor Courtney Van Cott has been consumed by a legal battle involving a noncompete agreement.

“You just have this cloud over you every single day,” she told ABC News in an exclusive interview.

In 2019, Van Cott’s former employer sued her for nearly $200,000, alleging multiple breaches of her contract, including a competitive clause. The contract required her to pay the old firm a 75 percent cut of homes she sold at her new job for three years.

“I definitely read it and I saw that it was not something I was comfortable with,” Van Cott said.

In a statement to ABC News, Van Cott’s former employer denied it forced her to sign the contract, saying it is “not a noncompete” but rather a “shared referral agreement” applying to both the company and Van Cott. The statement added Van Cott was an “independent contractor” who engaged in “unethical behavior,” a claim she denied.

Noncompete agreements are clauses in employment contracts that bar an employee from working at a rival company, usually within a certain geographic area or for a certain amount of time.

In a sweeping step earlier this year, the Federal Trade Commission (FTC) proposed a rule that would void noncompete clauses and ban their use in future contracts. The agency said the move would affect 30 million Americans, roughly one out of every five workers.

“This would say not only are all of those clauses unenforceable, but employers have to tell their workers, you no longer have a noncompete, you’re free to leave,” FTC Director of Policy Planning Elizabeth Wilkins told ABC News. “Effectively, that would mean that all of a sudden those 30 million workers could leave their jobs and find a better one for them tomorrow.”

Wilkins said the rule would boost wages and promote competition by allowing workers to move more freely between jobs, pointing to the widespread use of the agreements in low-wage service industries.

“People think this is about folks in the boardroom, but it’s not,” she said. “It’s also about hairstylists. It’s about security guards. It’s about journalists. People all across the income spectrum, all kinds of job descriptions have noncompetes.”

At Man & Machine, a small business that manufactures keyboards in Maryland, some employees have signed noncompete agreements.

But CEO Clifton Broumand said he supports the FTC’s proposed rule, saying it would allow him to recruit from a bigger pool of workers without fearing legal action from their employers.

“I think businesses will become more efficient when they’re not afraid of being sued, when they can innovate and focus on their businesses rather than focus on the possibility of legal action against them,” Broumand said in an interview with ABC News.

Critics accuse the FTC of overstepping its authority to enact such a sweeping change to the American workforce.

Neil Bradley, the executive vice president and chief policy officer at the U.S. Chamber of Commerce, which represents businesses across the nation, called the proposed rule “regulatory overreach.”

“If this rule comes to fruition, the U.S. Chamber will sue,” Bradley told ABC News. “If the FTC can wake up one day, [if] three unelected individuals can wake up one day, and decide that we think this business practice, that we think this employment practice is uncompetitive, therefore we are going to ban it, then there actually is no limit to what the FTC can do.”

He added noncompete agreements are an essential tool to protect trade secrets and retain workers in a highly competitive age of information.

“Employees today are often exposed to things that, while may not be technically trade secrets, really are kind of the ‘secret sauce’ for how a company’s going to operate,” Bradley said.

The public comment period for the FTC’s proposed rule is set to end on April 19 and the final rule could be issued by the agency in the coming months.

Copyright © 2023, ABC Audio. All rights reserved.