Federal Trade Commission Votes To Ban Noncompete Agreements

On Tuesday, the Federal Trade Commission (FTC) banned noncompete agreements in a 3-2 vote.

The FTC estimates that 18% of the U.S. workforce is covered by noncompete agreements, which prevents about 30 million employees from working for competitors or starting a competing business after they leave a job.

The final rule would ban new noncompete agreements for all workers and require companies to let current and past employees know they won’t enforce them. Companies will also have to throw out existing noncompete agreements for most employees, though agreements may remain in place for senior executives.

“It is so profoundly unfree and unfair for people to be stuck in jobs they want to leave, not because they lacked better alternatives, but because noncompetes prelude another firm from fairly competing for their labor, requiring workers instead to leave their industries or their homes to make ends meet,” FTC Commissioner Rebecca Slaughter said in her remarks.

The new rule will go into effect 120 days after it’s published in the Federal Register, though its future remains uncertain as pro-business groups opposing the rule are expected to take legal action to block the ruling.

Business groups claim noncompete agreements are critical for protecting proprietary information and intellectual property, although the rule would not ban other methods for protecting such information.

The U.S. Chamber of Commerce, the largest pro-business lobbying group in the country, said it will sue to block the rule. Chamber President and CEO Suzanne Clark called the FTC vote to ban noncompetes “a blatant power grab that will undermine American businesses’ ability to remain competitive.”

“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers and our economy,” Clark said. “The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.”

The lawsuit would mark the latest battle between the business community and President Joe Biden’s administration, with agencies including the FTC introducing measures to crack down on corporate price gouging, junk fees and alleged anticompetitive behavior.