On Jan. 5, 2023, the Federal Trade Commission proposed a new rule that would ban non-compete agreements between employers and workers in most circumstances. The proposed rule would also require employers to rescind any existing non-compete agreements with current and former workers. 

Non-compete terms rob workers of the freedom and power to move without restrictions to different employers within an industry or line of work, entrapping workers in subpar jobs. The FTC estimates that non-competes suppress workers’ income by 4%, denying Americans a collective $250 billion to $296 billion. Non-competes also contribute to gender and racial-based wage gaps.

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  • Studies found that one in six U.S. food preparation and service workers have signed a noncompete agreement. Non-compete terms bar restaurant workers from joining a competing business or starting their own business for a set period of time, after leaving a job.
  •  If finalized, the FTC proposed rule would benefit millions of food and restaurant industry workers, helping them to  raise their income and provide them further economic opportunities.
  • Most workers cannot negotiate their way out of a non-compete clause. Non-competes are buried in the fine print of employment contracts. A full third of noncompete clauses are presented after a worker has accepted a job.
  • Noncompetes prevent workers from becoming entrepreneurs and opening their own business. One study linked increased non-compete enforcement with a 12% decline in new firm entry.
  • Even if they are not enforced, the threat that employers could sue over a noncompete can deter some workers from leaving jobs, especially workers that cannot afford legal fees.

“I have worked for both a corporate-owned and franchise-owned McDonald’s restaurants for over 10 years. I am a single parent, struggling to make ends meet. But I didn’t have any opportunities to raise my income because I unknowingly entered into an agreement that forbids hiring me for other locations or other jobs that are a ‘competitor’ of McDonald’s. I didn’t know about non-compete terms because they were not explained to me during the hiring process. The FTC proposed rule on banning non-competes would allow me to grow and increase my wages to support myself and my child. I would no longer suffer from reduced wages and loss of professional growth opportunities.

“During the pandemic, as an essential worker, I was stuck at my job, earning $2.13 per hour, because of the non-compete clause that I agreed to have in my contract. I didn’t know that it would affect my wages and my life greatly. As a hardworking father, I risked my own life and the health of my family so that people could eat or bring food to their tables. But at that time, there were other employers that saw how important our job was, and they were hiring for higher wages and better benefits. Yet, I couldn’t leave my job because of the non-compete terms. I believe that the FTC proposed rule on banning non-compete terms would help me and millions of restaurant workers who may be in a similar situation.

“Laws to restrict non-compete agreements are less effective if they depend on the individual worker to enforce them, because workers—especially low-wage workers—are less likely to risk being sued or hiring a lawyer,” said Sachin Pandya, a professor at the University of Connecticut who specializes in employment law. “A government agency like the FTC has more power and resources to identify and sue employers who use illegal non-compete clauses, and thereby better deter other employers from using them, too.”