Federal regulators are poised to ban most noncompete agreements that prevent millions of American workers from moving jobs within their industries. The Federal Trade Commission is expected to vote on the new rule, which would have a significant impact on tens of millions of workers, from minimum wage earners to CEOs. Noncompete agreements limit workers’ ability to change jobs or start their own businesses, and the proposed rule aims to eliminate these restrictions for most employers.
The Federal Trade Commission has received over 26,000 public comments on the proposed rule, which would generally prevent employers from using noncompete clauses. President Biden directed the agency to address the unfair use of these agreements, which force employees to sign away future work opportunities. While the president’s executive order encouraged the FTC to target these labor restrictions, the rule is likely to face legal challenges if it is approved, with the U.S. Chamber of Commerce previously calling it “blatantly unlawful.”
FTC Chair Lina Khan has argued that noncompete agreements restrict workers from freely changing jobs, depriving them of higher wages and better working conditions. The estimated 30 million people in the U.S. who are bound by these restrictions could see a significant increase in wages if the rule is implemented, potentially adding up to nearly $300 billion per year. Employers defend the use of noncompetes by claiming they are necessary to protect trade secrets and confidential information, but critics argue that low-paid workers are disproportionately impacted by these agreements.
The prevalence of noncompete agreements has grown over the years, with companies using them to protect business information from competitors. A well-known case involving Jimmy John’s eateries highlighted how these agreements can impact low-paid workers. Entry-level employees such as janitors, security guards, and phlebotomists are often subject to noncompete agreements that prevent them from seeking better-paying jobs, despite having limited access to trade secrets. The new rule from the FTC seeks to address these issues and promote economic liberty and competition in the workforce.
