Noncompete Clauses Could Soon Be Illegal. What Does That Mean for Michigan Workers?

A new federal rule could prevent companies from forcing workers to sign exploitative contracts—and boost the economy in Michigan.

LANSING—Michigan workers are sounding off in favor of a new rule that could ban non-compete clauses in work contracts, and urging the Federal Trade Commission to prohibit the often exploitative business practice once and for all.

On Jan. 5, the FTC proposed a new rule which would prevent employers from forcing their employees to sign non-compete clauses, which effectively bar them from working in the same field within a certain area or timeframe after leaving the job. 

Business groups have long stood behind the clauses as a way to prevent trade secrets from being shared across industries. But Michigan workers opposed to non-compete clauses are speaking up, contending those contracts have effectively prevented them from getting other jobs and starting their own companies—even at workplaces with no trade secrets to be shared. 

“The healthcare field does not have any ‘company trade secrets.’ How we care for patients is universal,” commented Lisa Mueller, a Michigan nurse, on the draft proposal.

One day prior to publishing the draft rule, the FTC voided the noncompete clauses of a Michigan private security company that had forced its minimum-wage workers to sign contracts barring them from changing jobs within a 100-mile radius, or else face a $100,000 fine. 

The company, Prudential Security, later sued former employees who violated the clause and blocked other employees from accepting other jobs with higher wages, according to the FTC complaint. Before the FTC stepped in, more than 1,500 former Prudential employees had to abide by the terms.

“These cases highlight how noncompetes can block workers from securing higher wages and prevent businesses from being able to compete,” said FTC Chair Lina M. Khan in a Jan. 4 statement.

In drafting the newly proposed rule to ban the clauses, FTC officials estimated that American workers have earned between $250 and $300 billion less because of noncompete clauses—largely because they’ve been limited in their search for other job opportunities. Federal officials have also said that this trend is especially prevalent in the healthcare field, which can ramp up costs for consumers too. 

In some cases, noncompete clauses can also stop employees from starting their own businesses.

“The noncompete effectively blocks me from working in the practice of my choice and serving the people of my city that I seek to serve,” wrote Jonathan Nzoma, a private practice orthopedic surgeon in Southeast Michigan, in a comment on the FTC rule.

Riding a wave of pro-labor momentum, several states have recently banned noncompete clauses within employment contracts. In Michigan, they’re still legal—but limited in their scope. State law stipulates that noncompete clauses must be “reasonable,” which can carry varying degrees of legal interpretation.

In addition to preventing future noncompete clauses, the proposed FTC rule would also rescind existing noncompete clauses, and prevent employers from influencing where employees can work in the future. 

What happens next?

The draft rule is open to public comment through March 10. From there, the FTC will deliberate on changes to the ruling, which (barring any potential legal challenges) would go into effect 180 days after it’s finalized. Those interested in reading the full rule and making comments can do so at this link.