The Federal Trade Commission is looking to ban noncompete clauses in employment contracts, which companies put in place to prevent employees from going to work for competitors or leaving to start similar businesses. On Thursday, the regulator issued a notice of proposed rulemaking, saying that the clauses hurt innovation and “decrease competition for workers,” which leads to lower wages overall.
While the proposed rule, which you can read here, would benefit workers across industries, it’s especially relevant in tech.
For years, we’ve seen big tech companies attempt to get workers at every level to sign noncompete contracts — Kickstarter’s union fought against them while it was bargaining with the company, Acer sued a former CEO claiming he had violated one, Microsoft has imposed them on retiring executives, and Hideo Kojima was reportedly under one when leaving Konami. Amazon has even attempted to limit temporary warehouse workers’ job prospects for up to 18 months after they left (and made reaffirming the noncompete clause a condition for permanent workers who wanted to get severance when leaving the company).
Amazon actually gets a mention in a fact sheet the FTC put out alongside the proposal, with one of its employees being used as an example. “Gene, a vice president at Amazon who had signed a non-compete, left the company to serve as head of product for a tech startup,” the regulator says. “Amazon sued to block him from taking the job. After unfavorable media coverage, Amazon dropped the suit.”
The rule the FTC is proposing would require employers to drop any noncompete clauses in their existing contracts, as well as prevent them from adding new ones in the future. It would also apply to people who are classified as independent contractors. That’s more good news for the tech industry, which often relies on people who aren’t traditional employees. It also tries to assuage companies’ fears by saying they’d still have ways to make sure employees didn’t bolt to competitors with trade secrets — as we’ve seen in several high-profile cases from Tesla and Apple, there are other laws around intellectual property that employers could use in that kind of situation, regardless of noncompete contracts.
While this bill would almost certainly be beneficial to workers (including those outside the tech industry), there are a lot of hurdles before it actually goes into effect. For one, the FTC is seeking public comment and specifically asking people to weigh in on whether franchisees, high-level executives, and low- or high-wage workers should be treated differently under the rule.
It seems likely that companies will weigh in to try and protect their interests, and that last clause could be especially important for companies like Amazon, which has been scrutinized for applying noncompete clauses to both executives and warehouse workers.
Then the agency will be tasked with actually passing whatever legislation that comes out of the public comment process. Democrats currently have the majority in the commission, which could help this rule’s case given that it has support from chairperson Lina Khan.
Correction, January 5th 5:53PM ET: An earlier version of this story stated that the FTC was deadlocked with two Republicans and two Democrats. While that was the case in the past, it now has a Democrat majority.