Voted by the Federal Trade Commission (FTC) Tuesday’s 3-2 vote bans noncompete agreements that prevent tens of millions of employees from working for competitors or starting competing businesses after leaving their jobs.
From fast food workers to CEOs, the FTC estimates 18% of the US workforce Approximately 30 million people are covered by non-compete agreements.
The final rule prohibits new non-compete agreements for all workers and requires companies to notify current and former employees that they will not enforce non-compete agreements. Companies would also be required to abandon existing non-compete agreements for most employees, although the agreement could remain in effect for senior executives in a change from the original proposal.
“It is extremely inconvenient and unfair for people to be stuck in jobs they would like to leave, not because there are no better alternatives, but because a lack of competitiveness prevents other companies from competing fairly for labor. Because they were thwarted and instead required to leave their industries and homes to make ends meet,” FTC Commissioner Rebecca Slaughter (D) said in prepared remarks.
The new rules are expected to go into effect within 120 days of publication in the Federal Register. But its future is uncertain, as pro-business groups opposed to the rule are expected to take legal action to block its implementation.
Business groups argue that non-compete agreements are essential to protect confidential information and intellectual property, but the rule does not require other measures to protect information, such as non-disclosure or non-disclosure agreements. This method is not prohibited. They also question the authorities’ authority to issue blanket and retrospective bans.
Several bipartisan bills have been introduced to reform non-compete agreements, including the Workforce Mobility Act proposed by Sen. Chris Murphy (D-Conn.) and Sen. Todd Young (R-Ind.). However, Congress has not given the agency explicit authority to prohibit non-competes. ), Tim Kaine (D-VA), Kevin Cramer (RN.D.), and the Freedom of Competition Act by Sens. Marco Rubio (R-FL) and Maggie Hassan (DN.H). ) was sponsored.
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 nation’s largest pro-business lobbying group, announced it would sue to block the rule.
Chamber of Commerce President and CEO Suzanne Clark said the FTC’s noncompete vote is “a blatant power grab that undermines the ability of American companies to remain competitive.”
“This decision sets a dangerous precedent for government micromanagement of business, with the potential to harm employers, workers and the economy,” Clark said. “The Chamber plans to sue the FTC to stop this unnecessary and illegal rule and to put other agencies on notice that such overreach will not go unchecked.”
The dissenting members said they did not fully support noncompete agreements but did not believe the agency had the authority to issue regulations without explicit direction from Congress. .
“Starting with policy is putting the cart before the horse,” said FTC Commissioner Andrew Ferguson (R). “No matter how important, salient, or controversial the problem, and no matter how sensible the administrative solution, the regulatory power of the executive branch is always based on a legitimate grant of authority from Congress. We didn’t have the authority to do so, so the final rule is illegal.”
The lawsuit is the latest battle between the business community and President Biden’s administration, as regulators such as the FTC take steps to crack down on companies for alleged price gouging, junk fees and anticompetitive practices. Last month, the chamber led a lawsuit challenging a Consumer Financial Protection Bureau rule that capped credit card late fees on the largest issuers at $8.
The Biden administration, Democrats, and labor advocates argue that noncompete agreements restrict worker mobility, depress wages, and undermine entrepreneurship and competition in the U.S. economy.
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When the FTC first proposed the rule in January 2023, it estimated it would increase profits by nearly $300 billion each year. FTC Chair Lina Khan told reporters on Tuesday morning that about 25,000 of the 26,000 public comments the FTC received supported the proposal and that health care workers had “significantly He said that it occupies a “portion”.
These policy battles are unfolding against the backdrop of the 2024 presidential election, with Mr. Biden trying to clarify the differences between himself and former President Trump, who is considered the Republican candidate.
Biden and Trump are neck-and-neck in the race for the White House, according to average national polls analyzed by The Hill and Decision Desk. But voters say his predecessor handled the situation better, and the incumbent is trying to reverse negative perceptions of his handling of the economy.
Only 38% of voters said the economy was doing well under the Biden administration, compared to 65% who said the economy was doing well under the Trump administration, according to the poll. CBS News Poll Of 2,159 American adults released in March.
Inflation has fallen sharply from a peak of 9% in June 2022 to around 3% in recent months, but high prices are a top concern for many voters. A CBS News poll found that only 17% of voters believed Biden’s policies would lead to lower prices, compared to 44% who believed Trump’s intentions.
Updated at 3:41pm ET
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