Why the Federal Noncompete Rule Is Regulatory Overreach
The new Federal Trade Commission rule on noncompete agreements is a good example of regulatory overreach. In seeking to protect workers, the agency is delivering a blow to many thousands of small and large businesses that are themselves trying to protect their trade secrets as well as investments in employee training and customer contacts. That challenge does not need a fresh overlay of federal law, especially one that treats all industry sectors the same regardless of unique economic realities.
Recent research has portrayed such agreements as limiting pay prospects for millions of workers and dampening economic activity, by both restricting employee options to pursue higher paying jobs and limiting their ability to start businesses of their own. The restrictive agreements have now unfortunately migrated into more parts of the economy, even janitorial services and dog-walking, says one study. Health care workers also are often required to sign these measures that disproportionately harm lower-paid employees.
Such agreements have no place applying to craft work, first-level supervisors and many non-executive or non-manager functions of design and construction. The ability to job-hop for better pay is an important aspect of construction work life and careers—especially considering the seasonal and cyclical character of the work and fluid nature of the labor market.
As with so much other regulation, the interests of workers are often at odds with those of business owners, including the many thousands of small design and contracting companies created and operated by founders at great risk and without a huge financial payoff.
That’s why it’s important to remember, as Axios reports, that plenty of states already limit the use of noncompete agreements. California, Minnesota, North Dakota and Oklahoma have full bans and nine states restrict them based on income level. Only 12 states have no restrictions, says the news organization.
All noncompetes are limited by geography, time and market segments.
On the design side, we’ve seen staff jump from one employer to another many times. Noncompete clauses could discourage situations in which a staff member, after meeting and serving a client while employed at a company, walks out with that client to form a company or as a freelancer. With a limited duration, such clauses prevent this loss of a client from happening suddenly in a way that damages the former employer.
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As for contractors, commentary against the new rule from the Associated Builders and Contractors, based on a member survey conducted in 2022, explains that the clauses are used for staff who receive extensive training or shares of the company or who have access to proprietary information such as customers lists and pricing metrics.
With so much state law already on the books, there is no design and construction-related reason for a new federal rule.
