FTC Noncompete Ban Approved

The U.S. Federal Trade Commission (FTC) approved a rule to ban noncompete agreements, aiming to enhance worker mobility and increase wages, according to an article in Business Insurance.

The 3-2 vote by the Democratic-majority FTC marked a significant move against the common practice of requiring employees to sign such agreements, even in lower-paying sectors. The ban is projected to boost worker earnings by up to $488 billion over the next decade and stimulate the creation of over 8,500 new businesses annually.

FTC Chair Lina Khan emphasized the detrimental impact of noncompetes on workers’ rights and opportunities, stating they impede economic and other freedoms. However, Republican commissioners argued that the FTC lacks authority to enact sweeping rules against perceived anticompetitive behavior, contending it could nullify millions of existing contracts.

Critics from major business groups argue that noncompetes safeguard trade secrets and foster competitiveness. Legal challenges were swiftly mounted following the vote, with tax services firm Ryan LLC filing a lawsuit in Texas federal court and the U.S. Chamber of Commerce planning its own challenge. They assert that the FTC’s regulatory reach would extend too broadly if the ban were upheld.

The rule mandates companies to invalidate existing noncompete agreements and inform current and former employees of their unenforceability. Unions, including the AFL-CIO, supported the FTC noncompete ban, asserting that noncompete agreements hinder job mobility, suppress wages, and stifle competition. Notably, the ban excludes senior executives but applies universally across industries, except for certain exempt sectors like nonprofit organizations and airlines.

Several states, including California and Minnesota, have already prohibited noncompete agreements, with others imposing restrictions.