The Federal Trade Commission (FTC) has issued a final rule Tuesday banning noncompete agreements nationwide, affecting millions of Americans. Regulators argue that banning noncompetes will promote competition by giving workers greater ability to switch jobs, increasing innovation and leading to more businesses being created, according to an announcement from the FTC.
The FTC estimates that around 18% of U.S. workers, or 30 million people, are covered under a noncompete, with the new rule applying to anyone not in a senior executive role, which is defined as someone who is making more than $151,164 and in a policy-making position. “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina Khan said in the press release. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
The FTC argues that banning noncompete agreements under the new rule will increase business formation by 2.7%, equating to around 8,500 businesses per year, and increase worker earnings by $524 annually, according to the announcement. Regulators also claim that the rule will lead to an average of 17,000 to 29,000 more patents each year for the next 10 years.
Under the rule, workers under existing noncompetes will need to be notified by employers that the agreement will not be enforced in the future.
The U.S. Chamber of Commerce announced Tuesday that it would be suing the administration to block the rule change. “Today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy,” Suzanne Clark, President and CEO of the Chamber of Commerce said in the announcement. “This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy. The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.”
The FTC’s decision comes just one day after it launched a suit seeking to block the $8.5 billion merger between fashion giants Tapestry and Capri on competitiveness grounds. The FTC, under the Biden administration, has also sued Amazon for antitrust violations and has sought to stop the merger between grocers Kroger and Albertsons. The Biden administration, through the Department of Labor, made another sweeping labor change on Tuesday, increasing the pay threshold for salary workers.
