{"id":90702,"date":"2023-01-27T15:45:00","date_gmt":"2023-01-27T19:45:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=90702"},"modified":"2023-02-02T15:53:01","modified_gmt":"2023-02-02T19:53:01","slug":"noncompete-clauses-in-contracts","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/noncompete-clauses-in-contracts\/","title":{"rendered":"Noncompete Clauses in Contracts: Will the FTC Ban Them?"},"content":{"rendered":"\n

What are noncompete clauses in contracts? Why has the U.S. Federal Trade Commission (FTC) proposed a ban on noncompete clauses?<\/p>\n\n\n\n

The FTC recently proposed banning noncompete clauses, which restrict former employees and contractors from launching or working with rival companies. The clauses aim to protect businesses\u2019 sensitive information.<\/p>\n\n\n\n

Keep reading to learn why the FTC wants to ban noncompete clauses in contracts and if they’ll succeed.<\/p>\n\n\n\n\n\n\n\n

What Are Noncompete Clauses?<\/h2>\n\n\n\n

Some 30 million U.S. workers\u2014one in five\u2014sign noncompete clauses in a contract<\/a> when they start a job, which limits their future job options and may cost them money if and when they leave the company. Noncompetes prohibit employees and contractors from launching or working with a competing company, typically within a geographic radius and timeframe, which can be several years.<\/p>\n\n\n\n

However, this longstanding employer requirement may soon end. The U.S. Federal Trade Commission (FTC) recently proposed banning noncompete clauses in contracts<\/a>, saying they limit innovation, suppress wages, and violate workers\u2019 rights. The proposed ban provides one exception: allowing noncompetes between people buying and selling companies. <\/p>\n\n\n\n

In this article, we\u2019ll examine the evolution of noncompete clauses in contracts, their pros and cons, and their possible outlook. <\/p>\n\n\n\n

The Origins and Intentions of Noncompetes<\/h3>\n\n\n\n

Experts say the use of noncompete clauses in contracts dates back to 1414<\/a> when an English apprentice agreed not to practice his new trade in the same town as his master tradesman for six months, however, a judge struck down the agreement.<\/p>\n\n\n\n

In the early 1800s, noncompetes became regulated in the U.S. at the state level and, for a long time, they were largely reserved for executives, who were likely to know confidential information that could harm the company if shared with a competitor. However, in recent decades, their use has spread<\/a>.<\/p>\n\n\n\n

What Led to the Proposed Ban?<\/h3>\n\n\n\n

As noncompete clauses became more common, opposition to them grew. <\/p>\n\n\n\n

In 2007, Oregon transformed its noncompete law in workers\u2019 favor. The action set off a ripple effect, with dozens of states reviewing and revising their noncompete laws in the years that followed. <\/p>\n\n\n\n

Then federal lawmakers got involved. <\/p>\n\n\n\n