FTC bans noncompete agreements, making it easier for workers to quit. Here's what to know.

Authored by cbsnews.com and submitted by LUNA_underUrsaMajor

Federal regulators on Tuesday enacted a nationwide ban on new noncompete agreements, which keep millions of Americans — from minimum-wage earners to CEOs — from changing jobs within their industries.

The Federal Trade Commission on Tuesday afternoon voted 3-to-2 to approve the new rule, which will ban noncompetes for all workers when the regulations take effect in 120 days. For senior executives, existing noncompetes can remain in force. For all other employees, existing noncompetes are not enforceable.

The antitrust and consumer protection agency heard from thousands of people who said they had been harmed by noncompetes, illustrating how the agreements are "robbing people of their economic liberty," FTC Chair Lina Khan said.

The FTC commissioners voted along party lines, with its two Republicans arguing the agency lacked the jurisdiction to enact the rule and that such moves should be made in Congress.

Within hours of the vote, the U.S. Chamber of Commerce said it would sue to block "this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked." The new rule would "undermine American businesses' ability to remain competitive," the trade group, which advocates for U.S. corporations and businesses, said in a statement.

The new rule could impact tens of millions of workers, said Heidi Shierholz, a labor economist and president of the Economic Policy Institute, a left-leaning think tank.

"For nonunion workers, the only leverage they have is their ability to quit their job," Shierholz told CBS MoneyWatch. "Noncompetes don't just stop you from taking a job — they stop you from starting your own business."

Since proposing the new rule, the FTC has received more than 26,000 public comments on the regulations. The final rule adopted "would generally prevent most employers from using noncompete clauses," the FTC said in a statement.

The agency's action comes more than two years after President Biden directed the agency to "curtail the unfair use" of noncompetes, under which employees effectively sign away future work opportunities in their industry as a condition of keeping their current job. The president's executive order urged the FTC to target such labor restrictions and others that improperly constrain employees from seeking work.

"The freedom to change jobs is core to economic liberty and to a competitive, thriving economy," Khan said in a statement making the case for axing noncompetes. "Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand."

An estimated 30 million people — or one in five U.S. workers — are bound by noncompete restrictions, according to the FTC. The new rule could boost worker wages by a total of nearly $300 billion a year, according to the agency.

Employers who use noncompetes argue that they are needed to protect trade secrets or other confidential information employees might learn in the course of their jobs. But corporations concerned about protecting their intellectual assets can use restraints such as confidentiality agreements and trade secret laws, and don't need to resort to noncompete agreements, the FTC staff determined.

The commission's final rule does not nullify existing noncompetes with senior executives, who are defined as those earning more than $151,164 a year and who hold a policy-making position. Those execs are much more likely to negotiate the terms of their compensation, according to regulators.

Still, the FTC is banning new noncompetes for senior executives on the grounds that the agreements stifle competition and discourage employees from creating new businesses, potentially harming consumers.

The idea of using noncompetes to keep business information out of the hands of rivals has proliferated, noted Shierholz, citing a notorious case involving Jimmy John's eateries.

Low-paid workers are now the hardest hit by restrictive work agreements, which can forbid employees including janitors, security guards and phlebotomists from leaving their job for better pay even though these entry-level workers are least likely to have access to trade secrets.

In laying out its rationale for banishing noncompetes from the labor landscape, the FTC offered real-life examples of how the agreements can hurt workers.

In one case, a single father earned about $11 an hour as a security guard for a Florida firm, but resigned a few weeks after taking the job when his child care fell through. Months later, he took a job as a security guard at a bank, making nearly $15 an hour. But the bank terminated his employment after receiving a letter from the man's prior employer stating he had signed a two-year noncompete.

In another example, a factory manager at a textile company saw his paycheck dry up after the 2008 financial crisis. A rival textile company offered him a better job and a big raise, but his noncompete blocked him from taking it, according to the FTC. A subsequent legal battle took three years, wiping out his savings.

AbsoluteRook1e on April 23rd, 2024 at 21:27 UTC »

So as someone who works in local TV News, this is huge for broadcast journalism.

Pretty much all stations make reporters, anchors and producers sign some form of a noncompete clause. So in other words, if you want to get a better job opportunity (get into an executive producer role, anchor role, News Director even), you pretty much HAVE to move stations because internal promotions are often so rare. Meaning your local person who's been writing on your community for 2 to 3 years is throwing away his local expertise and knowledge about said community and moving across the country for those opportunities. Stations are CONSTANTLY shuffling talent from outside the state for this reason alone.

So because of this ruling, you're more likely to have journalists stick around in the same city, meaning they're going to have a much better grasp on the problems and cultural phenomenon that surround your community. This is a big win for journalism in my eyes.

Only question is whether this results in staffing cuts because of increased competition and rising wages, which may hurt the industry.

MarkB1997 on April 23rd, 2024 at 20:13 UTC »

My state (Illinois) banned them for workers making under I believe $75,000 last year, which is great for my field (mental health) because many practices have non-competes but pay shit.

There’s no reason that a worker shouldn’t be able to move on if we are in a truly “free market”. Employers do it all the time without warning.

LetWinnersRun on April 23rd, 2024 at 19:32 UTC »

These should have never existed in the first place