The U.S. Federal Trade Commission’s proposed new rule banning non-competition clauses in employee contracts could have wide implications across the ad industry, where those types of agreements are common.
The FTC proposed the rule because it said noncompetes suppress wages, hamper innovation and block entrepreneurs from starting their own businesses. It projected that, by eliminating noncompetes, U.S. wages could increase nearly $300 billion per year and open career opportunities for about 30 million Americans.
Currently, more than 30 million U.S. workers—18% of the country’s workforce—are required to sign noncompetes, according to the National Employment Law Project.
Linda Goldstein, partner and chair of law firm BakerHostetler’s advertising, marketing and digital media practice, said most corporations are opposed to the proposed rule because they rely on noncompetes to prevent employees from taking intellectual property and talent to direct competitors.
“It would have a huge impact on the ad industry because noncompetes are pretty much a standard clause in any senior-level executive compensation or employment agreement,” Goldstein said. “Right now, with how the FTC has composed it, they’re not really considering different circumstances. They’re contemplating something extremely broad here.”