The Federal Trade Commission has banned noncompete agreements for most of the U.S. workforce, freeing an estimated 30 million people bound by contracts that limit their ability to change jobs within their industry or strike out on their own. Labor advocates cheered Tuesday’s decision as a huge victory for workers, arguing that such agreements smother competition and hinder Americans’ earning powers.
The FTC contends that noncompete clauses ultimately decrease competition by preventing workers from pursuing opportunities within the same industry and “lower wages for both workers who are subject to them as well as workers who are not.”
The ban, which is the latest step in a major effort by the FTC to expand the boundaries of antitrust enforcement, is set to take effect in 120 days. But it could face disruption from legal challenges, which already are underway.
The ban would void existing noncompete agreements and broadly bar them in the future, allowing workers to “pursue better opportunities, shake up the market and push megacorporations towards fair practices,” said Liz Zelnick, director of the economic security and corporate power program at Accountable US, a nonpartisan government watchdog.
Although they are extremely common, such agreements are “very unpopular and very difficult to deal with” for workers, according to Peter Rahbar, a New York-based employment lawyer. He noted that the rule received overwhelming support from workers and labor advocates, with roughly 25,000 of the 26,000 public comments received by the FTC coming from those in support of a ban.
The biggest employers will be the most affected, “but even they’ve been bracing for this reality for a long time,” said Chambord Benton-Hayes, an employment lawyer based in Oakland, Calif.
The ban would give employers incentive to “expand the development and training offered to employees, to provide more comprehensive benefits packages, and to create a workplace environment that promotes long-term employment with a company,” Benton-Hayes said. “In addition, employers will have to be more creative with compensation for retention purposes.”
The rule change is already facing pushback, which could halt its implementation. On Wednesday, the U.S. Chamber of Commerce and other business groups sued the FTC in federal court in the Eastern District of Texas. They are asking the court to issue an injunction to prevent the rule from taking effect, arguing that the FTC’s decision “breaks with centuries of state and federal law and rests on novel claims of authority by the Commission,” according to the lawsuit.
That lawsuit and future challenges will probably hinge on whether the agency can legally force such a broad change on an issue Congress did not direct the regulator to take up, he said.
“Over the past few years, there have been significant challenges to administrative agencies and the scope of their powers to make rules and regulations in areas where Congress hasn’t instructed them to do so,” Rahbar said. “Traditionally, there’s been a lot of deference to agency rulemaking authority.”
Gregory Brown, a commercial litigation lawyer with Hill Ward Henderson, said the rule creates a landscape of uncertainty for employers and employees, given how broad the language is and how the FTC is exercising its power.
“There will be direct challenges to this rule, constitutional challenges and some challenges about the FTC’s authority,” Brown said. “I think chaos ensues from here.”
