The Federal Trade Commission voted 3-2 on Tuesday to approve a nationwide ban on non-compete agreements that corporations use to stop employees from taking jobs with competitors in the identical industry.
The recent Rule The law is scheduled to take effect 120 days after its official publication within the Federal Register. But business groups are expected to challenge it. Just hours after the vote, the US Chamber of Commerce promised to sue the agency over the regulation.
If formally implemented, the rule won’t only ban recent non-compete agreements, but can even force corporations to eliminate their existing non-compete agreements for all employees, except senior executives earning greater than $151,164 per 12 months and people working in policy-making roles are.
“Workers should have the right to choose who they want to work for,” President Joe Biden said Tuesday.
The FTC estimates that 30 million American employees, or about 18%, are currently subject to non-compete agreements.
The non-compete clause in an worker's employment contract may discourage someone from working for a competing company throughout the same industry in the hunt for higher profession opportunities, higher compensation, or a more suitable geographic location.
“Noncompetes keep wages low, stifle new ideas and rob the American economy of its dynamism, including the more than 8,500 new startups that would emerge each year if noncompetes were banned,” Lina Khan, chair of the Federal Trade Commission, said in a press release.
The FTC originally proposed the non-compete agreement in January 2023. Since then, it has received over 26,000 comments on the proposal, the overwhelming majority of which supported it, the agency said.
The FTC claims that non-compete agreements can reduce the efficiency of the labor market and result in “increased market concentration and higher prices for consumers.”
Meanwhile, industry groups contend that non-compete agreements help protect mental property and company secrets. The FTC suggests that corporations use other options, akin to nondisclosure agreements, to guard proprietary information.
Tuesday's vote is the newest move by an FTC that has been on the forefront of President Joe Biden's broader crusade against corporate giants and the foundations that help them dominate markets.
The agency did this along with the Justice Department's Antitrust Division filed dozens of lawsuits against planned corporate transactions in recent times.
In March, Biden launched a task force on corporate pricing practices to be co-led by the FTC, an independent agency, and the DOJ. Biden has repeatedly accused corporations of keeping prices artificially high, partly to clarify to the president why inflation has remained so persistent in recent times.
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