WASHINGTON — Non-compete agreements, which prohibit employees from joining or establishing competing businesses for a set period, will no longer be permitted in the United States. The Federal Trade Commission (FTC) voted 3-2 to ban these clauses, affecting approximately 30 million workers.
The Biden administration has taken a firm stance against non-compete measures, which have become increasingly common among not only high-level executives but also lower-paid employees such as security guards and sandwich-shop workers. Studies have revealed that over 10% of workers earning $20 or less per hour are subject to non-compete agreements.
FTC officials argue that such agreements harm workers by limiting their ability to pursue higher-paying jobs. They also disadvantage non-covered workers as fewer jobs become available due to reduced job turnover. Additionally, non-compete clauses hinder the growth of other businesses by restricting their access to qualified candidates.
The FTC received overwhelming support for the proposed ban, with over 26,000 comments expressing approval. The rule will take effect in four months, but legal challenges are expected. Business groups criticize the measure, arguing that it casts too wide a net and that the FTC lacks the authority to implement such a sweeping rule. Two Republican FTC appointees voted against the proposal, asserting that it exceeded the agency’s authority.
The U.S. Chamber of Commerce has declared its intention to sue to block the measure, potentially delaying its implementation for months or years. Additionally, if former President Donald Trump wins the 2024 presidential election, his administration could withdraw the rule.
The FTC justifies the ban on the grounds that non-competes constitute an “unfair method of competition.” However, the Chamber contends that the law does not empower the agency to regulate on such grounds. Opponents of non-compete agreements cite California’s ban as evidence of their contribution to the state’s thriving tech economy. They argue that the ability of innovators to leave companies and start their own has been crucial to the industry’s development.
