FTC Votes to Outlaw Noncompete Agreements Restricting Worker Mobility
On Tuesday, the Federal Trade Commission voted 3-2 in favour of prohibiting noncompete agreements nationwide, which employers often use to restrict their employees from accepting positions with competing firms within the same industry sector. The new regulation is slated to take effect 120 days after its publication in the Federal Register, with expected legal challenges from business associations. Shortly after the vote, the U.S. Chamber of Commerce announced its intention to challenge the ruling in court.
Once implemented, the rule will prohibit the inclusion of new noncompete clauses and mandate the elimination of existing ones for all employees except high-earning senior executives in policy-making roles, earning over $151,164 annually. President Joe Biden underscored the significance of enabling employees to choose their employers freely.
The FTC estimates that approximately 30 million American workers, comprising around 18% of the workforce, are currently bound by noncompete agreements, which can impede career advancement, higher compensation, or relocation opportunities within the same industry.
FTC Chair Lina Khan stated that noncompete clauses suppress wages, stifle innovation, and hinder economic growth. The proposal, initially introduced in January 2023, received substantial support, with over 26,000 comments received by the agency. The FTC contends that noncompete disrupt labour market efficiency and may contribute to market monopolisation and consumer price inflation.
Conversely, business groups argue that noncompete agreements safeguard intellectual property and trade secrets. The FTC suggests alternative measures, such as nondisclosure agreements, for protecting proprietary information.
This decision represents the latest endeavour by the FTC under President Biden’s administration to address corporate dominance and market concentration. The agency, along with the Department of Justice, has actively opposed proposed corporate mergers in recent years. Additionally, Biden initiated a task force aimed at scrutinising corporate pricing practices, reflecting concerns over persistent inflation trends.
