FTC unveils proposal to ban noncompete clauses

The Federal Trade Commission (FTC) on Thursday rolled out a proposal to prohibit employers from implementing noncompete clauses that limit workers’ ability to change jobs.

Noncompetes, which are used in a broad range of industries, make it difficult for employees to work for a competitor or start their own business for a period of time after they leave employment.

The FTC said that the rule could boost wages by nearly $300 billion per year by giving workers more power to find a new job or using the threat of leaving to demand a raise. The agency said that noncompetes also hinder innovation by blocking workers from launching their own startups.  

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chair Lina Khan said in a statement. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”

The left-leaning Economic Policy Institute estimates that between 36 million and 60 million private-sector workers are subject to noncompetes. 

President Biden issued an executive order in July 2021 directing agencies to take aim at barriers to competition, including banning or limiting noncompetes. 

“These agreements block millions of retail workers, construction workers, and other working folks from taking a better job, getting better pay and benefits, in the same field,” Biden said during a Cabinet meeting Thursday.

The rule, if finalized, wouldn’t just ban noncompetes going forward — it would also require employers to rescind existing noncompetes and inform workers of the change. It covers independent contractors and interns in addition to full-time employees. 

Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly group with close ties to Khan, cheered the proposed rule, arguing that noncompetes harm job mobility and satisfaction.

“For too long, coercive noncompete agreements have unfairly denied millions of working people the freedom to change jobs, negotiate for better pay, and start new businesses,” Miller said in a statement. 

The FTC voted 3-1 to introduce the rule, which is certain to draw opposition, and legal action, from business groups. 

The U.S. Chamber of Commerce, which represents many of the nation’s largest companies, had argued the FTC “lacks legal authority to promulgate a rule that would ban noncompete clauses” in a 2021 letter to the agency.

“Should the FTC attempt to respond to the petition and initiate a rule making, it will face strong legal challenges that waste precious enforcement resources,” the Chamber wrote.