FTC Bans Noncompete Agreements, Freeing 30 Million Workers

The FTC has voted 3-2 to ban noncompete agreements, which restrict employees from working for competitors or starting a competing business. The rule, set to take effect in 120 days, will impact 30 million workers, but faces legal challenges from pro-business groups.

Trim Correspondents
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FTC Bans Noncompete Agreements, Freeing 30 Million Workers

FTC Bans Noncompete Agreements, Freeing 30 Million Workers

The Federal Trade Commission (FTC) has voted 3-2 to ban noncompete agreements that restrict employees from working for competitors or starting a competing business after leaving a job. The move is expected to impact 18% of the U.S. workforce, approximately 30 million people.

Why this matters: This ban has significant implications for the U.S. economy, as it could lead to increased worker mobility and higher wages. By promoting competition and entrepreneurship, it may also have a positive impact on innovation and economic growth.

The final rule will ban new noncompete agreements for all workers. Companies will be required to inform current and past employees that they won't enforce noncompete agreements. Existing noncompete agreements for most employees will need to be terminated, except for senior executives.

The new rule is set to take effect 120 days after publication in the Federal Register. However, its future is uncertain, as pro-business groups opposing the rule are expected to take legal action to block its implementation.

FTC Commissioner Rebecca Slaughter (D) said, "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 preclude another firm from fairly competing for their labor..." U.S. Chamber of Commerce President and CEO Suzanne Clark responded, "This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy... The Chamber will sue the FTC to block this unnecessary and unlawful rule..."

Noncompete agreements have been criticized for limiting workers' mobility, depressing wages, and harming entrepreneurship and competition in the U.S. economy. The FTC estimates that the rule would increase earnings by almost $300 billion each year. The Biden administration, Democrats, and labor advocates have argued that noncompete agreements need to be reformed, while pro-business groups claim they are essential for protecting proprietary information and intellectual property.

This move is part of a larger effort by the Biden administration to crack down on corporate price gouging, junk fees, and alleged anticompetitive behavior. The policy battle is playing out against the backdrop of the 2024 presidential election, with President Biden aiming to draw distinctions between himself and former President Trump on economic issues.

The FTC's ban on noncompete agreements will free 30 million American workers to seek better job opportunities and higher wages. However, the rule faces legal challenges from business groups that could delay or block its implementation. The outcome will have significant implications for workers, businesses, and the U.S. economy in the years ahead.

Key Takeaways

  • FTC votes 3-2 to ban noncompete agreements, affecting 30 million workers.
  • Ban promotes worker mobility, higher wages, and entrepreneurship.
  • Rule takes effect 120 days after publication, but faces legal challenges.
  • FTC estimates ban will increase earnings by $300 billion annually.
  • Ban is part of Biden administration's effort to crack down on corporate practices.