More than 26,000 comments were submitted to the Federal Trade Commission regarding its proposed ban on noncompete agreements before the agency closed its comment period this week.
In her letter to the FTC, NJBIA Vice President of Government Affairs Alexis Bailey warned that a total ban of noncompetes will limit the ability of employers to protect their legitimate business interests.
“Reasonable noncompete agreements are an important tool for employers to protect their legitimate business interests,” Bailey said. “These types of agreements help promote innovation in the U.S. economy and lead to increased investment in businesses and their employees.
“Noncompete agreements ensure that previous employees are not able to unfairly utilize resources and information they obtained from a previous employer to gain an undue advantage as they move on in their careers.”
PROPRIETARY PROTECTION
Noncompete policies include a wide range of mostly temporary prohibitions of working for a competitor, or even working in the same geographic region.
The time frames they cover also vary, depending on what state courts determine, from six months to five years.
It is estimated that about 30% of private sector employers use noncompete agreements for all their workers.
Bailey said that while noncompete agreements can be overly burdensome in some cases, they do “ensure that proprietary information such as formulas or client lists are not utilized unfairly if a former employee intends to work for a direct competitor or start their own business in the same field.
“As a state that is home to many companies in the pharmaceutical, financial services and technology industries, these agreements are important to the economic vitality of the New Jersey economy,” Bailey said.
Despite the importance of those industries to the state economy, New Jersey Attorney General Matthew Platkin announced this week that the state is leading a multistate letter in support of the FTC’s ban on noncompete clauses.
When the FTC proposed the ban in January, it estimated that the change could increase wages by nearly $300 billion per year.
Bailey noted in her letter that NJBIA has long supported banning noncompete agreements for low-wage workers when discussing policies regarding restrictive covenants.
“Our organization has suggested restricting the use of noncompete agreements on anyone making less than the statewide average weekly wage,” she said.
“This figure is recalculated each year by the New Jersey Department of Labor and Workforce Development and is roughly $70,000 this year. A more tailored measure such as this would address the concerns the FTC has regarding the use of unenforceable noncompetes being placed on workers,” Bailey said.
TAKE IT TO THE STATES
Bailey also encouraged that the issue of noncompetes should remain a “state-level issue.”
“State courts already have the authority to completely strike noncompete agreements that impose an undue hardship on workers,” she said. “In addition to completely striking an overly burdensome restrictive covenant, New Jersey courts are empowered to ‘blue pencil’ or rewrite unreasonable noncompete agreements to make them enforceable.
“Through these mechanisms, both workers and employers are already protected from overly restrictive noncompete agreements.
“The Federal Government should leave these contracting matters to the states or at the very least consider a more narrow and targeted approach to address specific concerns rather than unnecessarily infringing on employers’ ability to protect their interests,” Bailey said.
To read Bailey’s full letter to the FTC, click here.
