Imagine you have a job at Jimmy John’s. Subway down the street offers you better hours and pay. But wait! There’s a noncompete clause in your employment contract. You can’t work for another sandwich shop in the area for two years.
A noncompete clause or agreement bars workers from jumping to or starting competing companies for a period of time. Companies use them to reduce competition and keep trade secrets, well, secret.
Most people think of these as being for high-level executives or engineers with insider knowledge. But some companies have used them for lower-paid workers, such as security guards and even sandwich-shop employees. (Jimmy John’s stopped using such agreements in 2016.) A 2021 study found that more than one in 10 workers who earn $20 or less per hour are covered by noncompete agreements.
In April, the Federal Trade Commission (FTC) issued a rule banning most noncompetes nationwide. It is scheduled to take effect in October. But the U.S. Chamber of Commerce, a business group, says it will sue to block the measure. That could stop the rule for months or years. And if former President Donald Trump wins the 2024 presidential election, his administration could withdraw the rule.
FTC officials claim that noncompete agreements harm workers by making it harder to switch jobs for better pay. People can get stuck in bad or insufficient workplaces because it’s hard to find another job. The agency asserts that noncompetes also hurt the economy. That’s because they limit the ability of other businesses to hire employees who have held jobs with similar employers.
But business groups criticize the measure as being too broad. They argue that the FTC lacks the authority to take such a step.
According to the FTC’s website, its mission is “protecting the public from deceptive or unfair business practices and from unfair methods of competition.”
The FTC is banning noncompetes on the grounds that they are an “unfair method of competition.” But the Chamber says the law doesn’t authorize the agency to make rules for that reason.
“If they were to start exercising that authority, you’re really opening a Pandora’s box,” says Neil Bradley. He is executive vice president at the Chamber. “There’s literally no limitations on what people one day can decide is an unfair method of competition.”
Still, business consultant Gene Marks says business owners need not worry. If the ban is upheld, he suggests using confidentiality or non-disclosure agreements. Those can prevent former employees from taking trade secrets.
As for you? Make sure to read the employment contract before taking that summer job.
Why? Officials seek to boost workers and business, but they risk overstepping their authority.
