Fact Check: Proposed FTC Rule to Ban Non-Competes Will Hamper Innovation

Claim: President Biden recently lauded the Federal Trade Commission’s (FTC) proposal to ban all non-compete agreements — which prevent employees who leave jobs from working for rival firms for a period of time — as a positive step taken to “restore the dignity of work.” He claimed that, under the current agreements, “a cashier at a burger place can’t cross the street to take the same job at another burger place to make a couple bucks more”.

Correction: The FTC’s proposed rule could harm every American worker by stunting job growth and curbing research and development investment across U.S. industries. And it would do so in the name of addressing a “problem” that rarely arises and that the courts already address with efficiency.

Non-compete agreements have been around for hundreds of years and are an essential component of the innovation economy. These agreements are most commonly utilized by high-tech industries for senior-level employees, who work with highly confidential data, formulas, source codes, processes, and other trade secrets. This specialized knowledge acquired on the job — and protection of such knowledge — drives innovation, competition, and economic growth that benefits American workers.

The courts have also long been equipped to handle rare instances of overreach and to prevent agreements from unfairly limiting an American workers’ earning potential or job mobility. Indeed, the courts consistently scrutinize and strike down non-competes over breadth, particularly those covering long periods of time or those seeking protection for alleged “trade secrets” that are readily ascertainable — as in the oft-cited Jimmy John’s case or President Biden’s hypothetical “burger place” example.

Bottom Line: This claim is false.

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