U.S. FTC bans noncompete agreements, cites boost to worker earnings

The U.S. Federal Trade Commission (FTC), with a Democratic majority under President Joe Biden, has approved a rule to ban noncompete agreements that limit worker mobility and suppress wages. The rule was proposed in January 2023. It will take effect in August this year.

The FTC believes that banning noncompetes will increase worker earnings by up to $488 billion over the next decade and create over 8,500 new businesses annually. 

FTC Chair Lina Khan emphasised that noncompete agreements restrict job opportunities and infringe on other fundamental rights of a worker.

“Robbing people of their economic liberty also robs them of all sorts of other freedoms, chilling speech, infringing on their religious practice, and impeding people’s right to organize,” Khan said.

However, the FTC's two Republican commissioners argued that federal law does not grant the FTC the authority to prohibit such agreements. Major business groups have criticised the rule, citing noncompetes as crucial for protecting trade secrets and promoting competitiveness.

Unions and left-leaning advocacy groups have supported the ban. They claimed it would benefit workers and the economy. The rule will require companies to eliminate existing noncompete agreements and inform employees that they will not be enforced. 

Legal complaints have been filed against the rule by several business groups like the U.S. Chamber of Commerce and Ryan LLC.

While the rule does not exempt specific jobs or industries, it will not apply to existing agreements signed by senior executives. Several states have already banned or limited noncompete agreements, with ongoing debates on the issue at the state level.
 

(with inputs from agencies)