FTC votes to ban noncompete agreements despite business groups’ vow to sue
US companies would no longer be 𓃲able to bar employees from taking jobs with competitors under a rule approved by a federal agency Tuesday, though the rule is sure to be challenged in court.
The Federal Trade Commission voted Tuesday 3-2 to ban measures known as noncompete agreements, which bar workers from jumping to or starting competing companies for a prescrib𒐪ed period of time. According to the FTC, 30 million people — roughly one in five workers — are now subject to such restrictions.
The Biden administration has taken aim at noncompete measures, which are commonly associated with high-level 𝓀executives at technology and financial companies but in recent years have also ensnared lower-paid workers, such as security guards and sandwich-shop employees.
A 2021 study by the Federal Reserve Bank of Minneapolis found that more than one in 10 w꧋orkers who earn $20 or less an hour are covered by noncompete agreements.
When it proposed the ban in January 2023, FTC officials ass🤡erted that noncompete agreements harm workers by reducing their ability to switch jobs for higher pay, a step that typ✨ically provides most workers with their biggest pay increases.
By reducing overall churn in the job market, the agency argued, the measures also disadvantage workers who aren’t covered by them because fewer jobs be﷽come available as fewer people leave jobs.
They can also hurt the economy overall by limiting the ability of other businesses to hire needed employeeꦺs, the FTC said.
The rule, wh🌞ich doesn’t apply🧸 to workers at non-profits, is to take effect in four months unless it is blocked by legal challenges.
“No🐻ncompete clauses keep wages low, suppress new ideas and rob the American economy of dynamism,” FTC Chair Lina Khan said. “We heard from employees who, because of noncompetes,🌠 were stuck in abusive workplaces.”
Some doctors, she added, have been prevented fr𝕴om practicing medicine after le𝐆aving practices.
Business groups have criticized the measure as casting too wide a net by blockin❀g nearly all noncompetes. They argue that highly paid executives are often able to win greater pay in return for accepting a noncom𝓰pete.
“It’ll represent a sea change,” said Amanda Sonneborn, a partner at King & Spalding in Chicago who represents employers that use noncompetes. “They don’t want somebody to go 💧to a competitor and take their customer list or take their information about their businꦦess strategy to that competitor.”
But Alexander Hertzel-Fernandez, a professor at Columbia University who is a former Biden administration Labor Department official, argued that lower-income workers don’t have the ability to negotiate over such provisio♕ns.
“When they get their job ꦡoffer,” he s🌳aid, “it’s really a take-it-or-leave-it-as-a-whole,” he said.
The US Chamber of Commerce said Tuesday that it will fiไle a lawsuit to block the rule. It accused the FTꦛC of overstepping its authority.
“Noncompete agreements are e♛ither upheld or dismissed under well-established state laws governing their use,” said Suzanne Clark, the chamber’s CEO. “Yet today, three unelected commissioners have unilꦉaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.”
Two Republican appointees to the FTC, Melissa Holyoak and Andrew Ferguson, voted against the proposal. They asserte🧜d tဣhat the agency was exceeding its authority by approving such a sweeping rule.
Noncompete agreements a🌼re banned in ওthree states, including California, and some opponents of noncompetes argue that California’s ban has been a key contributor to that state’s innovative tech economy.
John Lettieri, CEO of the ༒Economic Innovation Group, a tech-backed think tank, argues that the ability of early innovators to🦋 leave one company and start a competitor was key to the development of the semiconductor industry.
“The birth of so many important foundational companies could not have happened, at least not in the same way or on the same timeline and definitely not in th🐭e same place, had it not been for the ability of entrepreneurs to spin out, start their own companies, or go to a better company,” Lettieri said.
The White House has been stepping up its efforts to protect workꦯers as the presidential campaign heats up. On Tuesday, the Labor Department issued a rule that would guarantee overtime pay for more lower-paid workers. The rule would increase the required minimum salary level to exempt an employee from overtime pay, from about $35,600 currently to nearly $43,900 effective July 1 and $58,700 by Jan. 1, 2025.
🌃Companies will be requi🏅red to pay overtime for workers below those thresholds who work more than 40 hours a week.
“This r꧋ule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid more for that time,” sa𒀰id Acting Labor Secretary Julie Su.
