The Federal Trade Commission (FTC) has banned nearly all non-compete employment agreements that prohibit workers from leaving for competing companies or starting their own companies.
The ban passed by a narrow 3-2 vote on Tuesday after the commission received more than 26,000 public comments, some of which were mentioned by Commissioner Lina Khan.
“We have heard from employees who are stuck in abusive workplaces because of competitive violations,” she says. Said, according to NPR. “Some believe that when an employer merges with an organization that conflicts with their religious principles, the noncompete locks workers in place, preventing them from freely switching to jobs that are consistent with their religious practices.” It pointed out.”
FTC’s new ruleThe law, which takes effect 120 days after publication in the Federal Register, calls noncompete agreements “unfair methods of competition.”
Khan argued that this shared experience “demonstrates the fundamental reality that when you take away people’s economic freedom, you also take away all other kinds of freedom.”
1. Today @FTC Announced final rule prohibiting worker non-competes nationwide.
This rule would guarantee Americans the freedom to take new jobs, start new businesses, and bring new ideas to market.https://t.co/Ax9QQtHuvn
— Lina Khan (@linakhanFTC) April 23, 2024
Committee claimed More than 25,000 messages from the public were received during a 90-day public comment period starting in January 2023, which were “in support of the FTC’s proposed non-compete.”
Officials estimate that about 30 million people, or 20% of the U.S. workforce, are bound by non-competes. The FTC said the new policies could give people more freedom to work and increase total wages by nearly $300 billion a year.
“Non-compete clauses keep wages low, stifle new ideas, and take away the dynamism of the American economy, with more than 8,500 new companies created each year if they were banned,” Khan said in a statement. said. “The FTC’s final rule prohibiting non-competes will ensure Americans have the freedom to take new jobs, start new businesses, and bring new ideas to market.”
In addition to growing thousands of new businesses, the FTC estimates that the average worker’s income will increase by an additional $524 per year.
The agency also said the decision is estimated to reduce health care costs by up to $194 billion and increase patents by an average of 17,000 to 29,000 annually over the next 10 years.
The FTC also granted an exception to the rule for pre-existing non-competitive conduct between companies and senior executives representing less than 0.75% of the workforce.
“However, employers are prohibited from entering into or attempting to enforce new non-competes, even if senior executives are involved,” the agency said. “Employers must provide notice to non-senior employees who are bound by an existing non-compete that they will not enforce the non-compete.”
The commission’s lone dissenters, Republicans Melissa Holyoake and Andrew Ferguson, argued that the FTC overstepped its authority with the decision, NPR reported.
Holyoak predicted the rule would be challenged in court, and that prediction came true shortly after the vote.
A business group led by the U.S. Chamber of Commerce sued The FTC argued Wednesday in federal court in Texas that the commission lacks the authority to issue such a rule.
The group has been vocally opposed to the proposed ban for more than a year, arguing that non-competes are necessary for some companies to protect trade secrets. They also argued that non-competes help workers give employers greater incentive to invest in workforce training and development. bloomberg report.
“This decision sets a dangerous precedent for government micromanagement of business and is detrimental to employers, workers, and the economy,” Suzanne P. Clark, president and CEO of the U.S. Chamber of Commerce, said in a statement. There is a possibility that it will be given.”
“The Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only illegal, but also a blatant power grab that undermines the ability of American businesses to remain competitive.”
read @SuzanneUSCCStatement of why we are suing the FTC… pic.twitter.com/IdGgWQnaQR
— U.S. Chamber of Commerce (@USChamber) April 23, 2024
Meanwhile, Rep. Matt Gaetz (R-Fla.) praised the FTC’s decision as “a vindication of economic freedom and free enterprise.”
“Under Sections 5 and 6 of the FTC Act of 1914, the FTC is authorized to regulate to prohibit the following activities:[u]“Unfair methods of competition…and unfair or deceptive acts or practices in or affecting commerce,” the lawmaker wrote about X.
“This law has been in effect for more than a century and reflects that our Constitution is intended to limit the concentration of all powers within the country, whether public or private,” Gates said. continued. “As housing costs continue to rise and wages continue to stagnate under President Biden, the last thing we need is for companies to restrict free Americans’ ability to take second jobs or change jobs.”
“The @FTC rule is a win for American workers and consumers.”
Yesterday, the Federal Trade Commission, under the leadership of Commissioner Lina Khan, released a final rule banning most non-compete clauses across the United States. I applaud this move by the FTC as a vindication of economic freedom and free enterprise.
Section 5 and… https://t.co/ZPuWNXxezQ
— Rep. Matt Gaetz (@RepMattGaetz) April 24, 2024
Rep. Thomas Massie (R-Kentucky) argued that such employment contracts “have been and should be regulated by the states” rather than “bureaucratic rules.”
Such employment contracts are and should be regulated by the states.
But if we believe these contracts should be banned by the federal government, it should be done through laws passed by elected officials, not bureaucratic rules based on laws that are more than 100 years old. Should.
— Thomas Massie (@RepThomasMassie) April 24, 2024
