The Federal Trade Commission has taken a bold move to ban noncompete agreements that prevent employees from leaving for rival companies. This action is expected to create jobs, raise wages, and increase competition among businesses. Noncompetes cover approximately 30 million U.S. workers in various industries and roles, including TV news producers, hairdressers, corporate executives, and computer engineers. The agency believes that the ban will force companies to compete harder for talent, ultimately leading to increased wages for workers and the creation of new businesses.
The ban on noncompetes was approved in a 3-to-2 vote by the commission, with Commissioners Melissa Holyoak and Andrew N. Ferguson, both Republicans, voting against the measure. The commission’s chair, Lina M. Khan, stated that the decision would allow Americans the freedom to pursue new job opportunities, start businesses, or bring new ideas to the market. The U.S. Chamber of Commerce has vowed to sue the F.T.C. to block the proposal, arguing that it is an unlawful power grab and should be left to the states to address.
The new rule would become law 120 days after being published in the Federal Register, potentially leading to legal challenges that could delay or block the change. The commission has specified that noncompete contracts affecting senior executives can remain in effect, but employers cannot impose new noncompetes on any employee, including executives. The rule defines executives as employees in policy-making positions who earn at least $151,164 annually.
Some states, such as California and Oregon, have already moved to restrict noncompete agreements on their own. In New York, Gov. Kathy Hochul vetoed a bill in December that would have banned noncompetes in the state. The State Legislature’s Democratic majority passed the bill, but the veto was supported by Wall Street, which staunchly opposed the legislation. Studies have shown that noncompetes can suppress wages by limiting workers’ ability to switch jobs to increase their pay.
The ban on noncompetes is expected to have a significant impact on the labor market, allowing millions of workers to be free to pursue better job opportunities almost overnight. Some employers use noncompetes to prevent workers from leaving for rival firms, but others struggle to hire workers bound by the same agreements. Under the leadership of Lina M. Khan, the F.T.C. has taken a more aggressive stance toward regulating corporate America by proactively setting rules for businesses in addition to suing companies for legal violations. The agency has also proposed new regulations to govern online and children’s privacy, as well as ban hidden fees related to consumer purchases.
