Lamberton Law Blog

Non-compete agreements, once a tool reserved for high-level executives and employees with access to sensitive company information, have become increasingly common across all levels of the workforce. These agreements prohibit employees from working for a competitor or starting a competing business for a specified period after leaving their current employer. Non-competes have been widely criticized for stifling competition, limiting worker mobility and depressing wages. Today  we will discuss the abuse of non-compete agreements by employers, the Federal Trade Commission's (FTC) proposed regulation to ban such agreements, and the Commonwealth of Pennsylvania's support for this initiative.
 

The Abuse of Non-Compete Agreements by Employers

Non-compete agreements were originally designed to protect companies from having their trade secrets, confidential information, and customer relationships exploited by departing employees. However, many employers have begun using these agreements indiscriminately, applying them to low-wage workers and employees who do not have access to sensitive information. This practice has led to a range of negative consequences for workers and the economy as a whole.

One of the most significant issues with the widespread use of non-compete agreements is that they limit worker mobility. When employees are bound by these agreements, they may be unable to find work in their chosen field after leaving their current employer, as doing so could violate the terms of their non-compete. This can lead to extended periods of unemployment or force workers to accept jobs in unrelated fields, often at lower wages.

Moreover, the mere existence of non-compete agreements can have a chilling effect on employees' willingness to seek better opportunities. Even if a non-compete agreement is ultimately unenforceable, many workers may be unaware of this fact or lack the resources to challenge the agreement in court. As a result, they may feel trapped in their current positions, unable to pursue higher-paying jobs or escape toxic work environments.

The abuse of non-compete agreements also has broader economic consequences. By limiting worker mobility, these agreements can stifle competition and innovation. When employees are unable to move freely between companies, they are less likely to share ideas and best practices, which can slow the pace of technological advancement and economic growth. Additionally, the widespread use of non-competes can depress wages across entire industries, as workers have fewer opportunities to negotiate for higher pay.
 

The FTC's Proposed Regulation Banning Non-Compete Agreements

In response to the growing concern over the abuse of non-compete agreements, the Federal Trade Commission (FTC) has proposed a new regulation that would ban such agreements nationwide. The proposed rule would make it illegal for employers to enter into or attempt to enforce non-compete agreements with their workers.

The FTC's proposal is based on the premise that non-compete agreements constitute an unfair method of competition and violate Section 5 of the Federal Trade Commission Act. The agency argues that these agreements harm competition in labor markets, ultimately leading to lower wages, reduced innovation, and decreased consumer welfare.

Under the proposed regulation, employers would be prohibited from using non-compete clauses in employment contracts, and any existing non-compete agreements would be rendered void and unenforceable. The ban would apply to all workers, regardless of their income level or job responsibilities, with limited exceptions for certain situations, such as the sale of a business.

The FTC's proposed ban on non-compete agreements has been met with widespread support from labor advocates, consumer groups, and many lawmakers. These supporters argue that the regulation would help level the playing field for workers, promote competition, and boost economic growth.

The Commonwealth of Pennsylvania's Support for the FTC's Proposed Regulation

The Commonwealth of Pennsylvania has been a vocal supporter of the FTC's proposed ban on non-compete agreements. In February 2023, Pennsylvania Attorney General Michelle Henry joined a coalition of 20 state attorneys general in submitting a comment letter to the FTC, expressing strong support for the proposed regulation.

In the letter, the attorneys general argued that non-compete agreements have become increasingly common in recent years, with an estimated 30 million American workers currently subject to such agreements. They noted that these agreements are often used in industries and occupations where they serve no legitimate business purpose, such as in the case of low-wage workers who do not have access to trade secrets or sensitive information.

The attorneys general also highlighted the negative impact of non-compete agreements on workers and the economy, echoing many of the concerns raised by the FTC. They argued that these agreements depress wages, limit worker mobility, and stifle innovation and entrepreneurship.

Furthermore, the letter emphasized the disproportionate impact of non-compete agreements on vulnerable populations, including low-wage workers, women, and people of color. The attorneys general noted that these groups are often less likely to have access to legal resources to challenge unfair or unenforceable non-compete agreements, making them particularly susceptible to the abusive use of these clauses.

By joining the coalition in support of the FTC's proposed ban on non-compete agreements, the Commonwealth of Pennsylvania has demonstrated its commitment to protecting workers' rights and promoting fair competition in the labor market. This support also reflects a growing consensus among state governments that the abuse of non-compete agreements has become a significant problem requiring federal intervention.

In summary

The abuse of non-compete agreements by employers has had far-reaching consequences for workers and the economy. These agreements limit worker mobility, depress wages, and stifle competition and innovation. The FTC's proposed regulation banning non-compete agreements represents a significant step towards addressing these issues and leveling the playing field for workers.

The Commonwealth of Pennsylvania's support for the FTC's proposal, alongside a coalition of other state attorneys general, underscores the growing recognition that non-compete agreements have been widely misused and that federal action is necessary to protect workers' rights and promote fair competition.

As a Pittsburgh employment law firm that represents employees, the Lamberton Law Firm understands the challenges that workers face when confronted with non-compete agreements. We believe that the FTC's proposed ban on these agreements is a crucial step towards creating a more equitable and dynamic labor market, and we applaud the Commonwealth of Pennsylvania for its support of this important initiative.

If you have questions about non-compete agreements or any other employment law issues, please contact us for assistance. Our experienced attorneys are dedicated to protecting workers' rights and helping them navigate the complex legal landscape of employment law.