On Tuesday, the Federal Trade Commission (FTC) decided by a narrow 3-2 margin to prohibit noncompete agreements, which restrict millions of workers from joining competitors or launching rival ventures. These agreements affect fast food employees, hairstylists and top executives; employees who currently encompass about 18% of the American workforce, or approximately 30 million individuals.
“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, requiring workers instead to leave their industries or their homes to make ends,” FTC Commissioner Rebecca Slaughter (D) said in prepared remarks.
Under the finalized ruling, companies will be barred from implementing new noncompete agreements for any employee category. Additionally, they must inform both current and former staff members that these agreements won’t be enforced. While existing noncompete agreements will generally be invalidated for most employees, a notable exception is made for senior executives and policy makers who may still be subject to such agreements, albeit with some modifications from the initial proposal.
Congress has not given the FTC explicit authority to ban noncompetes. The Workforce Mobility Act sponsored by Sens. Chris Murphy (D-Conn.), Todd Young (R-Ind.), Tim Kaine (D-Va.) and Kevin Cramer (R-N.D.), and the Freedom to Compete Act sponsored by Sens. Marco Rubio (R-Fla.) and Maggie Hassan (D-N.H.) are bipartisan congressional efforts to reform noncompete agreements.
Advocates for businesses argue that noncompete agreements are essential safeguards for proprietary information and intellectual property. However, it’s important to note that the rule does not prohibit alternative methods of safeguarding such information, such as nondisclosure and confidentiality agreements. Moreover, there are concerns regarding the FTC’s jurisdiction to impose a broad, retrospective prohibition on noncompete agreements.
The U.S. Chamber of Commerce, the largest pro-business lobbying group in the country, has said it will sue to block the rule.
The potential lawsuit represents the latest clash between the business sector and the current administration. Various governmental bodies, including the FTC, have been unveiling initiatives aimed at curbing corporate practices such as price gouging, imposition of excessive fees, and suspected anticompetitive conduct.
Labor proponents have contended that noncompete agreements curtail worker mobility, suppress wages, and stifle entrepreneurship and competition within the U.S. economy.
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