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FTC Bans Noncompete Agreements, Businesses Vow Fight

— May 13, 2024

Proponents of the FTC’s decision believe it will empower workers to negotiate higher wages and pursue better employment opportunities.

In a landmark decision, the Federal Trade Commission (FTC) voted to ban noncompete agreements for most American workers. This controversial move, hailed by worker advocates and denounced by business groups, is expected to spark a legal battle with significant implications for the U.S. labor market.

The 3-2 vote, split along party lines, prohibits employers from requiring workers to sign agreements that restrict them from joining competitors or starting their own businesses after leaving a job. The FTC estimates this policy affects a staggering 30 million workers, or roughly 18% of the workforce, encompassing everyone from fast-food cashiers to CEOs.

Lina Khan, the FTC Chair, championed the decision, emphasizing the stifling effect noncompete agreements have on worker mobility and economic freedom. She noted that they not only restrict opportunities for workers but potentially infringe on other fundamental rights by blocking them from changing jobs.

“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.

Proponents of the ban believe it will empower workers to negotiate higher wages and pursue better opportunities, ultimately boosting the economy through increased competition and innovation. The FTC predicts the ban could lead to a staggering $300 billion annual increase in wages as workers have more freedom to switch jobs.

However, the business community is fiercely opposed to the ruling. The U.S. Chamber of Commerce, the nation’s largest business lobby, swiftly announced plans to sue the FTC, calling the ban “unnecessary, unlawful, and a blatant power grab.”

FTC Bans Noncompete Agreements, Businesses Vow Fight
Photo by RDNE Stock project from Pexels

“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” said Suzanne Clark, the Chamber’s president and CEO.

Businesses argue that noncompete agreements are crucial for protecting trade secrets and intellectual property and incentivize companies to invest in employee training.

The dissenting FTC commissioners echoed these concerns, questioning the agency’s authority to implement such a sweeping rule without explicit congressional authorization. They predict the ban will be struck down in court.

Andrew Ferguson, one of the commission’s two Republican commissioners said, “We are not a legislature. I do not believe we have the power to nullify tens of millions of existing contracts.”

Not long after the vote, Ryan LLC, a tax services firm based in Dallas, Texas, filed a federal lawsuit challenging the ban. In it, Ryan LLC claims that noncompete agreements benefit workers and the economy.

The legality of the FTC’s action remains to be seen. While several states have already banned or restricted noncompete agreements, this federal-level decision represents a significant shift. The upcoming legal battle will determine if the FTC has overstepped its bounds or ushered in a new era of worker empowerment in the U.S.

“Big business lobbyists are already vowing to sue the FTC to stop the noncompete ban from going into effect,” Bharat Ramamurti, the former deputy director of the Biden White House’s National Economic Council, posted to X, in response to news of pending lawsuits. “They love noncompetes as a way to keep workers under their thumb and suppress wages.”


US bans worker ‘noncompete’ agreements as business groups vow to sue

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