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It can give workers more freedom.

Main points:

  • Non-compete clauses can limit employees’ options when they separate from their employers.
  • The new proposal could give workers more rights to do the work they want.

When you accept a new job, it’s common for you to fill out a bunch of paperwork. This can include tax forms and a number of different contracts designed to protect your employer.

Such agreement is non-competitive. Whether you sign one as a stand-alone contract or as a clause in a larger employment contract, a non-compete clause effectively prohibits you from working for your employer’s competitors for a certain period of time after you leave that company. For example, you may be required to sign a non-compete agreement that prohibits you from working for a competitor for six or nine months after you quit, either voluntarily or due to layoff.

But being non-competitive can be very limiting. Let’s say you have specialized skills and work in a fairly niche industry. In that case, there is a good chance that any other company that seeks to hire you will be considered a competitor of your employer. This can leave you in a very difficult situation where you cannot work for several months and as a result your savings are completely depleted.

But the new proposal could make non-compete clauses and agreements a thing of the past. And if it passes, it could be a very positive development for workers.

When the contract holds you back

Right now, non-competes are not illegal, although they can be difficult in some cases. But the Federal Trade Commission recently proposed a new rule that calls for a ban on non-competes. If it passes, it could open the door to more jobs for many workers who end up parting ways with their employers.

This new proposal not only seeks to ban non-competes, but also to revoke existing non-competes that have already been signed. In general, almost every industry can be affected by this change.

What frustrates non-competes so much is that their language is often vague and open to interpretation. Some non-competitors, for example, do not clearly define what a competitor is. This makes it difficult to know what employees are legally allowed to pursue after separating from their employers.

Worse still, employees are not released from their non-compete obligations in situations where they are fired through no fault of their own. Now imagine that you are a dedicated employee who just lost your job due to the need to downsize your company. You did nothing wrong and it was not your choice to quit. However, you are now stuck with limited choices when it comes to finding a new role due to your non-compete. If this proposal is accepted, all that could change.

An important development

The National Employment Law Project estimates that more than 30 million workers, at least 18% of the total US workforce, are forced to sign a non-compete agreement as a condition of employment. Banning non-competes can help ensure that millions of workers are not subjected to undue hardship in finding employment because of these one-sided clauses and agreements.

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