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FTC Moves to Ban Non-Compete Agreements, Aiming to Boost Labor Mobility

 |  April 23, 2024
The Federal Trade Commission (FTC) voted 3-2 on Tuesday in favor of banning non-compete agreements that restrict employees from working for competitors or launching competing ventures after leaving their jobs. The ruling, set to affect an estimated 30 million workers across various industries, marks a significant shift in labor regulations in the United States.

Non-compete agreements have been criticized for limiting job mobility and stifling competition in the labor market. From entry-level positions to executive roles, approximately 18 percent of the American workforce is currently bound by these agreements, according to FTC estimates.

Under the new rule, companies will be barred from implementing new non-compete agreements for all workers. Additionally, they must inform current and former employees that existing non-compete agreements will not be enforced. However, a notable exception would still allow such agreements to remain for senior executives.

Commissioner Rebecca Slaughter (D) emphasized the importance of the ruling, stating, “It is profoundly unfree and unfair for people to be stuck in jobs they want to leave because non-competes preclude another firm from fairly competing for their labor.”

Related: Noncompete Agreements And Antitrust’s Rule of Reason

Despite the FTC’s decision, the rule’s implementation faces uncertainty due to expected legal challenges from pro-business groups. Opponents to the ban argue that these agreements are essential for safeguarding proprietary information and intellectual property, and have questioned the FTC’s authority to issue a blanket ban, particularly retroactively.

According to The Hill, the absence of explicit authorization from Congress to ban non-compete agreements adds further complexity to the issue. However, bipartisan efforts have been made to address the matter through legislation, with bills such as the Workforce Mobility Act and the Freedom to Compete Act aiming to reform non-compete agreements.

The U.S. Chamber of Commerce, a prominent pro-business lobbying organization, has vowed to challenge the ruling in court, raising concerns about governmental overreach. Commissioner Andrew Ferguson (R) echoed these sentiments, saying that the FTC lacks the authority to regulate non-compete agreements without a clear mandate from Congress.

The potential legal battle over non-compete agreements adds to a series of conflicts between the business community and the Biden administration. Recent regulatory measures aimed at curbing corporate misconduct, including crackdowns on price gouging and anti-competitive practices, have drawn opposition from industry groups.

Source: FTC