US Regulator Moves to Prohibit Non-Compete Clauses

The Federal Trade Commission has introduced a proposal to ban the use of non-compete clauses in employment contracts across the US. According to the regulator, these clauses, which restrict employees from working for similar companies for a specified period, constitute an unfair competitive practice that suppresses wages, impedes innovation, and discourages entrepreneurship. FTC Chair Lina M. Khan emphasized that the freedom to change jobs is essential for a thriving economy, stating, "The ability to switch jobs is fundamental to economic freedom and a competitive economy. Non-compete clauses restrict workers' ability to change jobs, depriving them of better wages and working conditions, and limiting businesses' access to the talent they need to grow and innovate. By eliminating this practice, the proposed rule would foster greater competition, innovation, and economic dynamism." The FTC will accept public comments on the proposed rule for 60 days before potentially revising and finalizing it. The proposal was approved by a 3-1 vote, with the sole Republican commissioner, Christine S. Wilson, dissenting. Non-compete clauses are prevalent in the gaming industry and have been at the center of several high-profile disputes. In the past, companies like Ubisoft have been involved in controversies surrounding non-compete clauses, including a 2006 incident with Electronic Arts and a 2011 incident with THQ. More recently, in 2016, Trendy Entertainment took Studio Wildcard to court, alleging that former Trendy creative director Jeremy Stieglitz had recruited Trendy employees to work for Studio Wildcard shortly after his departure. Stieglitz's initial contract with Trendy included a three-year non-compete clause, which he later negotiated down to one year.