The Federal Trade Commission (FTC) proposed a rule that would ban non-compete agreements preventing employees from starting a competing business or working for a competitor for a certain period after employment.
The FTC proposal follows a series of aggressive moves to limit the power of large companies under the agency's Chair, Lina Khan. Khan proposed banning non-competes in January 2023, citing that the 30 million Americans impacted by such contracts could increase their wages and career satisfaction. Shortly afterward, United States (US) President Joe Biden praised the proposal, saying in his 2023 State of the Union Address that non-compete clauses are designed to lower people's wages. The FTC is accepting comments on the proposal for another 60 days, at which time the agency will move to make its decision final.
Non-compete agreements are thought by the FTC to hold down pay and reduce competition within industries. The FTC estimates that this rule could raise wages by almost $300 billion annually across the economy. Even in states where non-competes are largely unenforceable, companies often include them in employment contracts, with many workers turning down job offers as a result.
Defenders of non-competes, such as the US Chamber of Commerce, argue that non-competes actually encourage healthy competition by making employers more likely to invest in training, among other things.
"When appropriately used, non-compete agreements are an important tool in fostering innovation and preserving competition," the Chamber of Commerce wrote in an emailed statement. "Non-competes protect an employer's special investment in, training of, and disclosure of sensitive business information to its employees."
The FTC's claims that non-competes harm the public have also been questioned by critics like US Representative Jim Jordan (R). The FTC proposal would make it illegal for an employer to enter into a non-compete agreement with a worker or suggest that a worker is bound by a non-compete when, in reality, they are not. Jordan argues that this is extreme government overreach and vows to work with other Republicans to prevent it.
