The Federal Trade Commission (FTC) has approved a rule prohibiting noncompete agreements, a common practice that has been criticized for stifling worker mobility and suppressing wages. The 3-2 vote during a public meeting on Tuesday marks a significant victory for worker advocates and unions. The rule, which takes effect in August, will require companies to scrap existing noncompete agreements and to inform current and past employees that they will not be enforced.
The FTC, which enforces antitrust laws, argues that noncompete agreements limit workers’ opportunities and infringe on their fundamental rights. Chair Lina Khan emphasized that such agreements not only restrict economic freedom but also chill speech, infringe on religious practice, and impede the right to organize. However, the agency’s two Republican commissioners, Melissa Holyoak and Andrew Ferguson, expressed concerns about the FTC’s authority to adopt such a broad rule.
Major business groups have criticized the rule, claiming that noncompete agreements protect trade secrets and promote competitiveness. Shortly after the vote, tax services firm Ryan LLC filed a lawsuit challenging the ban, arguing that it benefits businesses, workers, and the economy. The U.S. Chamber of Commerce has also pledged to file a legal challenge.
The rule does not exempt any specific jobs or industries but will not apply to existing agreements signed by senior executives. Unions have hailed the FTC’s decision, with the AFL-CIO stating that noncompete agreements trap workers, drive down wages, and stifle competition. Several states have already banned or restricted the use of noncompete agreements, including California, Minnesota, Oklahoma, and North Dakota.
