FTC Approves Ban on Noncompete Agreements
The Federal Trade Commission (FTC) has taken a bold step towards enhancing worker mobility and promoting competition by approving a rule that prohibits noncompete agreements. These agreements, which have traditionally been used to prevent employees from taking on competing employment after leaving a company, have faced growing scrutiny due to their perceived negative impact on workers.
According to the FTC, approximately 30 million American workers, roughly one in five, are currently subject to noncompete restrictions. While these measures have historically been associated with high-level executives, they have increasingly ensnared lower-paid workers in recent years. In fact, a 2021 study by the Federal Reserve Bank of Minneapolis found that more than one in ten workers earning $20 or less per hour are bound by noncompetes.
The FTC asserts that noncompete agreements stifle career advancement and limit workers’ bargaining power. By reducing job turnover, they create a less competitive labor market, which ultimately disadvantages workers seeking higher compensation. Moreover, noncompetes can hinder innovation by restricting the movement of skilled workers between companies, preventing the cross-fertilization of ideas necessary for economic growth.
Despite criticism from business groups who argue that the FTC is overstepping its authority, the rule is expected to take effect in six months. The U.S. Chamber of Commerce has announced its intention to challenge the measure in court, potentially delaying its implementation. However, the FTC’s action marks a significant step towards protecting workers’ rights and promoting a more dynamic labor market.
