The FTC just banned non-compete agreements

The Federal Trade Commission (FTC) voted 3-2 on Tuesday to prohibit noncompete agreements that restrict tens of millions of employees from working for competitors or starting similar businesses after leaving a job.

The FTC estimates that around 30 million people, or 18 percent of the U.S. workforce, are subject to noncompete agreements, spanning from fast food workers to CEOs.

The final rule will prohibit new noncompete agreements for all workers and mandate that companies inform current and former employees that they will not enforce such agreements. Most existing noncompete agreements for employees will also be invalidated, except for senior executives, a change from the original proposal.

FTC Commissioner Rebecca Slaughter (D) emphasized the unfairness of noncompetes, stating, “It is so profoundly unfree and unfair for people to be stuck in jobs they want to leave, not because they lacked better alternatives, but because noncompetes preclude another firm from fairly competing for their labor, requiring workers instead to leave their industries or their homes to make ends meet.”

The new rule is set to take effect 120 days after its publication in the Federal Register. However, its future is uncertain, as pro-business groups opposed to the rule are expected to legally challenge its implementation.

Business groups argue that noncompete agreements are crucial for safeguarding proprietary information and intellectual property. They also question the FTC's authority to issue a blanket, retroactive ban.

Although Congress has not explicitly granted the FTC the authority to ban noncompetes, several bipartisan bills have been introduced to reform such agreements, including the Workforce Mobility Act and the Freedom to Compete Act.

The U.S. Chamber of Commerce, the largest pro-business lobbying group, has announced its intention to sue to block the rule, with Chamber President and CEO Suzanne Clark calling the FTC's decision "a blatant power grab" that undermines American businesses' competitiveness.

While the dissenting commissioners acknowledged concerns about noncompetes, they disagreed with the FTC's authority to issue the rule without a specific directive from Congress.