The Federal Trade Commission (FTC) voted 3-2 on Tuesday to ban noncompete agreements that prevent tens of millions of employees from working for competitors or starting a competing business after they leave a job.
From fast food workers to CEOs, the FTC estimates 18 percent of the U.S. workforce is covered by noncompete agreements — about 30 million people.
The final rule would ban new noncompete agreements for all workers and require companies to let current and past employees know they won’t enforce them. Companies will also have to throw out existing noncompete agreements for most employees, although in a change from the original proposal, the agreements may remain in effect for senior executives.
“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,” FTC Commissioner Rebecca Slaughter (D) said in prepared remarks.
The new rule is slated to go into effect 120 days after it’s published in the Federal Register. But its future is uncertain, as pro-business groups opposing the rule are expected to take legal action to block its implementation.
Business groups say noncompete agreements are critical for protecting proprietary information and intellectual property, although the rule would not ban other methods for protecting that information, including nondisclosure and confidentiality agreements. They also question the agency’s authority to issue the blanket, retroactive ban.
Congress has not given the agency explicit authority to ban noncompetes, although there have been several bipartisan bills introduced to reform noncompete agreements, including the Workforce Mobility Act sponsored by Sens. Chris Murphy (D-Conn.), Todd Young (R-Ind.), Tim Kaine (D-Va.) and Kevin Cramer (R-N.D.), and the Freedom to Compete Act sponsored by Sens. Marco Rubio (R-Fla.) and Maggie Hassan (D-N.H.).
Sen. Chris Murphy (D-Conn.) speaks to reporters in the basement of the Capitol on Thursday, February 8, 2024 (Greg Nash)
The U.S. Chamber of Commerce, the largest pro-business lobbying group in the country, has said it will sue to block the rule.
Chamber President and CEO Suzanne Clark called the FTC vote to ban noncompetes “a blatant power grab that will undermine American businesses’ ability to remain competitive.”
“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” Clark said. “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.”
While the dissenting commissioners said they did not support noncompete agreements carte blanche, they did not believe the agency had the authority to issue the rule without an express directive from Congress.
“Beginning with policy puts the cart before the horse,” FTC Commissioner Andrew Ferguson (R) said. “No matter how important, conspicuous and controversial the issue, and no matter how wise the administrative solution, an administrative agency’s power to regulate must always be grounded in the valid grant of authority from Congress. Because we lacked that authority, the final rule is unlawful.”
The lawsuit would be the latest battle between the business community and President Biden’s administration, with agencies including the FTC rolling out measures to crack down on corporate price gouging, junk fees and alleged anticompetitive behavior. Last month, the Chamber led a lawsuit challenging a Consumer Financial Protection Bureau rule that caps credit card late fees at $8 for the largest issuers.
The Biden administration, Democrats and labor advocates have argued noncompete agreements limit workers’ mobility, depress their wages and harm entrepreneurship and competition in the U.S. economy.
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When the FTC first proposed the rule in January 2023, it estimated the rule would increase earnings by almost $300 billion each year. FTC Chair Lina Khan told reporters Tuesday morning that around 25,000 of the 26,000 public comments the agency received supported the proposal, with health care workers making up “a pretty significant chunk.”
These policy battles are playing out against the backdrop of the 2024 presidential election, as Biden aims to draw distinctions between himself and the presumed Republican nominee, former President Trump.
Biden and Trump are neck and neck in the race for the White House, according to national polling averages analyzed by The Hill and Decision Desk HQ. But the incumbent has been trying to turn around negative perceptions of his handling of the economy, with voters saying his predecessor handled it better.
Only 38 percent of surveyed voters rated the economy as good under Biden, compared to 65 percent who said it was good under Trump, according to a CBS News poll of 2,159 American adults released in March.
While inflation has fallen significantly from its 9 percent peak in June 2022 to around 3 percent in recent months, high prices are top of mind for many voters. The CBS News poll found just 17 percent of surveyed voters believe Biden’s policies will help bring prices down, compared to 44 percent who think Trump’s will.
Updated at 3:41 p.m. EDT