FTC votes to ban noncompete agreements

The Federal Trade Commission (FTC) has voted 3-2 Tuesday to ban noncompete agreements that prevent tens of millions of employees from working for competitors or starting a competing business after leaving their jobs.

From fast food workers to CEOs, the FTC estimates that 18% of the U.S. workforce is covered by noncompete agreements, or about 30 million people.

The final rule would prohibit new noncompete agreements for all workers and require companies to let current and former employees know that they will not enforce them. Companies will also have to abandon existing non-compete agreements for most employees, although, unlike the initial proposal, the agreements could remain in effect for senior executives.

“It is deeply unfair and unfair for people to find themselves stuck in jobs they want to leave, not because they haven’t had better alternatives, but because non-competes prevent another company from compete fairly for their labor force, forcing workers to leave their industry or home. to make ends meet,” FTC Commissioner Rebecca Slaughter (D) said in prepared remarks.

The new rule is expected to take effect 120 days after publication in the Federal Register. But its future is uncertain, as pro-business groups opposed to the rule are expected to take legal action to block its implementation.

Business groups say noncompete agreements are essential to protecting proprietary information and intellectual property, although the rule would not prohibit other methods of protecting that information, including noncompetition agreements. -disclosure and confidentiality. They also question the agency’s authority to issue a blanket, retroactive ban.

Congress has not given the agency explicit authority to prohibit non-competes, although several bipartisan bills have been introduced to reform non-compete agreements, including the Workforce Mobility Act sponsored by senators Chris Murphy (D-Conn.), Todd Young (R-Ind.), Tim Kaine (D-Va.) and Kevin Kramer (R-N.D.), and the Freedom to Compete Act sponsored by Senators Marco Rubio (R -Fla.) and Maggie Hassan (DN.H.).

The American Chamber of Commerce, the nation’s largest pro-business lobbying group, said it would sue to block the rule.

Chamber President and CEO Suzanne Clark called the FTC’s vote to ban noncompetes “a blatant power grab that will undermine the ability of American businesses to remain competitive.”

“This decision sets a dangerous precedent for government micromanagement of businesses and can harm employers, workers and our economy,” Clark said. “The Chamber will sue the FTC to block this unnecessary and illegal rule and will put other agencies on notice that such overreach will not go unchecked.”

Although the dissenting commissioners said they did not support carte blanche to noncompete agreements, they did not believe the agency had the authority to issue the rule without an express directive from Congress.

“Starting with politics puts the cart before the horse,” said FTC Commissioner Andrew Ferguson (R). “However important, high-profile, and controversial the issue may be, and however wise the administrative solution, the rule-making power of an administrative agency must always be based on the grant of valid authority of Congress. Because we did not have this authority, the final rule is illegal.

The lawsuit would be the latest battle between the business community and President Biden’s administration, with agencies including the FTC rolling out measures to crack down on corporate price gouging, unwanted fees and alleged anticompetitive behavior. Last month, the House led a lawsuit challenging a Consumer Financial Protection Bureau rule that caps late fees on credit cards at $8 for the largest issuers.

The Biden administration, Democrats and labor rights advocates have argued that noncompete agreements limit worker mobility, depress their wages and harm entrepreneurship and competition in the U.S. economy.

When the FTC first proposed this rule in January 2023, it estimated it would increase profits by nearly $300 billion each year. FTC Chair Lina Khan told reporters Tuesday morning that about 25,000 of the 26,000 public comments the agency received supported the proposal, with health care workers making up “a pretty significant portion.”

These political battles are playing out against the backdrop of the 2024 presidential election, as Biden seeks to draw distinctions between himself and the presumptive Republican nominee, former President Trump.

Biden and Trump are neck and neck, according to national polling averages analyzed by The Hill and Decision Desk HQ. But the outgoing president is working to reverse negative perceptions about his handling of the economy, with voters saying his predecessor handled it better.

Just 38 percent of voters surveyed rated the economy as good under Biden, compared to 65 percent who rated it as good under Trump, according to a CBS News poll of 2,159 U.S. adults released in March.

While inflation has declined significantly, from its peak of 9% in June 2022 to around 3% in recent months, high prices remain a major concern for many voters. The CBS News poll found that only 17 percent of voters surveyed think Biden’s policies will help lower prices, compared to 44 percent who think Trump’s will.

Updated 3:41 p.m. EDT