04-30-2024
The Federal Trade Commission voted narrowly to ban most noncompete clauses in employment agreements. To support the vote, FTC Chair Lina Khan referenced stories from workers during the comment period. She noted, "We heard from employees who, because of noncompetes, were stuck in abusive workplaces," and these stories "pointed to the basic reality of how robbing people of their economic liberty also robs them of all sorts of other freedoms." FTC data shows about 20 percent of American workers are bound by noncompetes. Easing employees' ability to switch jobs could lead to increased wages totaling almost $300 billion a year, according to the FTC. The ban will go into effect later this year, and it carves out existing noncompetes for senior executives who likely had the power to negotiate those terms.
As announced right after its passage, the U.S. Chamber of Commerce and other business groups have filed suit to stop the ban from going into effect. The Chamber argues the FTC lacks the authority to implement such a ban, stating it "breaks with centuries of state and federal law and rests on novel claims of authority." Business groups believe this ban will hurt their ability to protect proprietary information and reduce incentives to invest in workers because these employees might move on to work for competitors. The Supreme Court has made decisions over the last few years indicating an inclination to reduce the scope of administrative agencies by requiring express congressional authorization. The FTC contends its rulemaking authority is "crystal clear" under its mandate to oversee “unfair methods of competition.”