Federal Trade Commission Chairwoman Lina Khan testifies before a House Judiciary Committee hearing on oversight of the Federal Trade Commission on Capitol Hill on July 13, 2023 in Washington, DC.
Kevin Worm | Reuters
The Federal Trade Commission voted 3-2 on Tuesday to approve a nationwide ban on non-compete agreements that companies use to prevent employees from taking jobs with competitors in the same industry.
The new rule is scheduled to take effect 120 days after its official publication in the Federal Register, but business groups are expected to challenge it. Just hours after the vote, the US Chamber of Commerce promised to sue the agency over the regulation.
If formally implemented, the rule will not only ban new non-compete agreements, but will also force companies to eliminate their existing non-compete agreements for all employees, except senior executives earning more than $151,164 per year and those working in policy-making roles are.
“Workers should have the right to choose who they want to work for,” President Joe Biden said Tuesday.
The FTC estimates that 30 million American workers, or about 18%, are currently subject to non-compete agreements.
The non-compete clause in an employee’s employment contract may discourage someone from working for a competing company within the same industry in search of better career opportunities, higher compensation, or a more suitable geographic location.
“Noncompetes keep wages low, stifle new ideas and rob the American economy of its dynamism, including the more than 8,500 new startups that would emerge each year if noncompetes were banned,” Lina Khan, chair of the Federal Trade Commission, said in a press release.
The FTC originally proposed the non-compete agreement in January 2023. Since then, it has received over 26,000 comments on the proposal, the vast majority of which supported it, the agency said.
The FTC claims that non-compete agreements can reduce the efficiency of the labor market and lead to “increased market concentration and higher prices for consumers.”
Meanwhile, industry groups contend that non-compete agreements help protect intellectual property and company secrets. The FTC suggests that companies use other options, such as nondisclosure agreements, to protect proprietary information.
Tuesday’s vote is the latest move by an FTC that has been at the forefront of President Joe Biden’s broader crusade against corporate giants and the rules that help them dominate markets.
The agency, along with the Justice Department’s antitrust division, has filed dozens of lawsuits against proposed corporate transactions in recent years.
In March, Biden launched a task force on corporate pricing practices to be co-led by the FTC, an independent agency, and the DOJ. Biden has repeatedly accused companies of keeping prices artificially high, partly to explain to the president why inflation has remained so persistent in recent years.
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2024-04-23 20:46:18
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