U.S. bans noncompete agreements for nearly all jobs

U.S. bans noncompete agreements for nearly all jobs

Enlarge this image toggle caption Drew Angerer/Getty Images Drew Angerer/Getty Images

The Federal Trade Commission narrowly voted Tuesday to ban nearly all noncompetes, employment agreements that typically prevent workers from joining competing businesses or launching ones of their own.

The FTC received more than 26,000 public comments in the months leading up to the vote. Chair Lina Khan referenced on Tuesday some of the stories she had heard from workers.

"We heard from employees who, because of noncompetes, were stuck in abusive workplaces," she said. "One person noted when an employer merged with an organization whose religious principles conflicted with their own, a noncompete kept the worker locked in place and unable to freely switch to a job that didn't conflict with their religious practices."

These accounts, she said, "pointed to the basic reality of how robbing people of their economic liberty also robs them of all sorts of other freedoms."

The FTC estimates about 30 million people, or one in five American workers, from minimum wage earners to CEOs, are bound by noncompetes. It says the policy change could lead to increased wages totaling nearly $300 billion per year by encouraging people to swap jobs freely.

The ban, which will take effect later this year, carves out an exception for existing noncompetes that companies have given their senior executives, on the grounds that these agreements are more likely to have been negotiated. The FTC says employers should not enforce other existing noncompete agreements.

The vote was 3 to 2 along party lines. The dissenting commissioners, Melissa Holyoke and Andrew Ferguson, argued that the FTC was overstepping the boundaries of its power. Holyoke predicted the ban would be challenged in court and eventually struck down.

Shortly after the vote, the U.S. Chamber of Commerce said it would sue the FTC to block the rule, calling it unnecessary, unlawful and a blatant power grab.

For more than a year, the group has vigorously opposed the ban, saying that noncompetes are vital to companies, by allowing them to better guard trade secrets, and employees, by giving employers greater incentive to invest in workforce training and development.

"This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy," wrote Suzanne P. Clark, president and CEO of the U.S. Chamber, in a statement.