Federal Trade Commission Chair Lina Khan testifies during a House Judiciary Committee hearing on Federal Trade Commission oversight on July 13, 2023, at the Capitol in Washington, DC.
Kevin Worm | Reuters
The Federal Trade Commission on Tuesday voted 3-2 to pass a nationwide ban on noncompete agreements that companies use to prevent employees from taking jobs at competitors in the same industry.
new rule It is expected to take effect 120 days after it is officially published in the Federal Register, but business groups are expected to object. Within hours of the vote, the U.S. Chamber of Commerce vowed to sue the chamber over the rule.
If formally implemented, the rule would not only prohibit new non-compete clauses, but also prohibit existing non-compete clauses for all employees with annual income exceeding $151,164 and excluding senior executives in policy-making roles. Companies will also be forced to abolish non-compete clauses.
“Workers should have the right to choose who they want to work for,” President Joe Biden said Tuesday.
The FTC estimates that 30 million U.S. workers, or approximately 18%, are currently subject to non-competes.
Non-compete clauses in employee contracts can prevent you from working for a competing company within your industry in search of better career opportunities, higher compensation, or a more suitable geographic location.
“Non-compete clauses keep wages low, stifle new ideas, and reduce the number of startup companies that would be created annually if non-compete clauses were banned,” Federal Trade Commission Chair Lina Khan said in a press release. “It takes away the dynamism of the American economy, including businesses.” .
The FTC originally proposed the non-compete in January 2023. The agency said it has since received more than 26,000 comments on the proposal, the majority of which were in support.
The FTC argues that noncompetition can impede labor market efficiency and lead to “increased market concentration and higher consumer prices.”
Meanwhile, industry groups argue that non-competes help protect intellectual property and trade secrets. The FTC suggests that companies rely on other means, such as non-disclosure agreements, to protect sensitive information.
Tuesday’s vote came as the latest move by the FTC, which has been at the forefront of President Joe Biden’s broader campaign against rules that help big corporations and market dominance.
The agency, in cooperation with the Antitrust Division of the Department of Justice, filed dozens of lawsuits Opposes proposed corporate transactions over the past several years.
In March, Biden launched a task force on corporate pricing practices jointly led by the independent FTC and the Department of Justice. Biden has repeatedly accused companies of keeping prices artificially high, in part to explain to the president why inflation has remained so high for the past few years.
