Why a federal non-compete agreement constitutes regulatory overreach

The Federal Trade Commission’s new ruling on non-compete agreements is a good example of regulatory overreach. In an effort to protect employees, the agency is dealing a blow to the many thousands of small and large companies that are trying to protect their trade secrets and investing in employee training and customer relations. This challenge does not require a new imposition of federal law, especially one that treats all industries the same regardless of unique economic realities.

Recent research has shown that such agreements limit the wage prospects of millions of workers and undermine economic activity by limiting workers’ opportunities to take higher-paying jobs and limiting their ability to start their own businesses. According to one study, restrictive agreements have now unfortunately spread to more areas of the economy, even to cleaning and dog walking services. Health care workers are often required to sign these acts, which disproportionately harm lower-paid workers.

Such arrangements do not exist for craft works, first-level managers and many non-executive or non-managerial design and construction roles. The ability to change jobs to obtain better pay is an important aspect of life and career in the construction industry – especially considering the seasonal and cyclical nature of work and the fluid nature of the labor market.

As with many other regulations, the interests of employees often conflict with the interests of business owners, including many thousands of small design and construction companies created and run by founders at great risk and without enormous financial rewards.

Therefore, it is important to remember, as Axios reports, that many countries already limit the use of non-compete 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, the news organization says.

All non-competes are limited by geography, time and market segment.

When it comes to design, we have seen many times employees jump from one employer to another. Non-competition clauses may discourage situations in which an employee, after meeting and serving a client while employed by the company, leaves with that client in order to start a company or as a freelancer. Such clauses, with a limited duration, prevent the sudden loss of a client in a manner detrimental to the former employer.

On the contractor side, Associated Builders and Contractors’ commentary on the new rule, based on a 2022 member survey, clarifies that the clauses apply to workers who have undergone extensive training or have an ownership interest in a company or have access to proprietary information such as customer lists and pricing metrics.

With so many state regulations already in place, there is no design and construction reason to introduce new federal regulations.