The Federal Trade Commission (FTC) has taken a significant step towards eliminating noncompete agreements in the United States. On Tuesday, the agency voted to ban these measures, which prohibit employees from joining or starting competing companies for a specified period after leaving their current job. According to the FTC, approximately 30 million American workers, or roughly one in five, are currently subject to such restrictions.
The Biden administration has made it a priority to address the issue of noncompete agreements, which have increasingly been used not only for high-level executives but also for lower-paid workers such as security guards and sandwich-shop employees. A 2021 study by the Federal Reserve Bank of Minneapolis revealed that over 10% of workers earning $20 or less an hour are covered by noncompete agreements.
The FTC contends that noncompete agreements harm workers by limiting their ability to switch jobs for higher pay, which is typically the most effective way for workers to increase their earnings. The agency also argues that these agreements disadvantage workers who are not covered by them, as they reduce the number of available jobs due to decreased employee turnover. Furthermore, the FTC maintains that noncompete agreements can hinder economic growth by restricting the ability of businesses to hire needed employees.
Business groups have voiced strong opposition to the FTC’s proposed ban, arguing that it is overly broad and will potentially block almost all noncompete agreements. They also question the FTC’s authority to implement such a ban. The U.S. Chamber of Commerce has announced its intention to file a lawsuit to prevent the measure from coming into effect, a process that could potentially delay its implementation for months or even years. Additionally, if former President Donald Trump wins the 2024 presidential election, his administration could potentially rescind the rule.
