Rule banning non-competes takes effect in September but big businesses, some lawmakers oppose it

WASHINGTON — A rule proposed by the Federal Trade Commission that would ban nearly all non-competes from employment contracts is supposed to take effect in early September.

When the rule takes effect, companies would no longer be allowed to ban employees from going to a competing business, or starting their own.

While the rule is seen as a boon to workers, and meant to protect them according to the FTC, big businesses, and some lawmakers, are opposed to it and are concerned it could hurt companies.

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Channel 2 Washington Correspondent Samantha Manning was at the Capitol, where lawmakers for and against the non-compete clause ban debated the rule set to take effect.

Employment data shows non-compete clauses affect about 30 million American workers, from doctors to hairstylists.

Companies use the clause in contracts to stop employees from leaving to work for competitors, and even for starting their own businesses.

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“These agreements are unfair and un-American,” Sen. Elizabeth Warren (D-Mass.) said at a recent debate.

While the FTC rule takes effect Sept. 4, not all lawmakers are in agreement.

At the hearing, senators heard from Hayley Paige, a wedding dress designer who was sued by her former employer when she tried to renegotiate a contract that had a non-compete clause in it.

“I was forbidden from using my own birth name, I was also not allowed to practice my chosen trade for a seven-year period, unpaid,” Paige told senators.

Paige said she fought back, but it cost her millions of dollars that she didn’t have.

“It left me financially devastated,” Paige told lawmakers.

Republican members of Congress have cautioned against the nearly total ban on non-compete agreements, arguing that while in some cases it may be predatory, other times there may be good reasons to use non-competes.

The exceptions to non-compete clause in the FTC rule are narrow and only cover:

• Executives in policy-making positions
• Employees making at least $151,164 per year

“When it’s necessary to protect business information, when it is necessary to protect trade secrets, there can be a place for non-compete agreements,” Sen. John Kennedy (R-La.) said.

While some businesses have sued to try to stop the rule from taking effect, they’ve been so far blocked in court.

Advocates for the removal of non-compete agreements argue that banning them is long overdue.

“We cannot restrict people from working,” Paige said.

The FTC estimates that when the rule takes effect, it could lead to 8,500 new businesses being created every year and could help workers’ wages rise an extra $524 per year.

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