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FTC votes to ban noncompetes

On Behalf of | May 9, 2024 | Employee Rights |

In a close decision on Tuesday, April 22, the Federal Trade Commission (FTC) made a move that could change the game for American workers. A divided commission voted to ban noncompetes in a 3 to 2 split, which came down to party lines. The dissenting voices, Commissioners Melissa Holyoak and Andrew Ferguson believe the FTC is reaching beyond its authority. Holyoak anticipates legal challenges that could reverse the ban.

The vote ends the widespread use of noncompete agreements—contracts that can stop employees from working for competing companies or starting their own businesses in the same industry.

The public speaks

The FTC reviewed more than 26,000 public comments leading up to the vote. FTC Chair Lina Khan shared some of the personal stories from workers during the session, speaking about employees trapped in jobs they couldn’t leave because of noncompete clauses, even when their work environment was toxic or conflicted with their personal beliefs, including religious practices.

The far reach of noncompetes

These restrictive contracts are not just for the top brass; they span all employment levels. The FTC’s research suggests that one in five workers in the U.S.—about 30 million people, from those making minimum wage to those sitting in the executive suite—are tied to noncompetes. By removing these restraints, the FTC believes workers could freely switch jobs and get nearly a $300 billion yearly boost in wages.

Exceptions to the rule

There’s a notable catch to the new ban: it won’t touch noncompetes already handed out to high-ranking executives. The FTC argues these agreements are different because they are more often the result of negotiations. For all other existing noncompetes, the FTC’s message to employers is clear: don’t try to enforce them.

Business leaders push back

The U.S. Chamber of Commerce didn’t waste time announcing its intention to sue the FTC over the new rule. It sees the ban as unnecessary, against the law, and an overreach of the FTC’s power. For more than a year, the Chamber has been fighting the proposed ban, claiming that noncompetes are essential, arguing that they protect trade secrets and encourage investment in employee training because they reduce the risk of losing staff to direct competitors.

What it means for the workforce

If the ban on noncompetes stands, it could revolutionize the job market. Free from these agreements, employees might find themselves with more power to negotiate better terms and seek out opportunities that align with their goals and values. It’s a change that could inject new life into the workforce and stimulate competition in the labor market.

This firm endorses the change

“Covenants not to compete are already illegal in certain sectors of the economy, most notably involving attorney services,” pointed out CM&S’s Kevin Costello. “It makes sense. Such covenants stifle competition, create hardships for working families, and allow the “haves” to oppress the “not yet haves, but want to work hard to gets.” We applaud the FTC’s efforts to create more fairness for working people and to stimulate the economy by incentivizing workers.”