The Federal Trade Commission (“FTC”) voted 3-2 on Tuesday to ban noncompete agreements that prevent tens of millions of employees from working for competitors or starting a competing business after they leave a job. The final rule can be read here.
From fast food workers toCEOs, the FTC estimates 18 percent of the U.S. workforce is covered by noncompete agreements — about 30 million people.
The final rule would ban new noncompete agreements for all workers and require companies to let current and past employees know they won’t enforce them. Companies will also have to throw out existing noncompete agreements for most employees, although in a change from the original proposal, the agreements may remain in effect for senior executives.
What to know about the FTC prohibition of noncompete agreements
“It is so profoundly unfree and unfair for people to be stuck in jobs they want to leave, not because they lacked better alternatives, but because noncompetes preclude another firm from fairly competing for their labor, requiring workers instead to leave their industries or their homes to make ends,” FTC Commissioner Rebecca Slaughter (D) said in prepared remarks.
The new rule is slated to go into effect in 120 days after it’s published in the Federal Register. However, its future is uncertain, as pro-business groups opposing the rule are expected to take legal action to block its implementation.
Business groups say noncompete agreements are critical for protecting proprietary information and intellectual property, although the rule would not ban other methods for protecting that information, including nondisclosure and confidentiality agreements. They also question the agency’s authority to issue the blanket, retroactive ban.
Congress has not given the agency explicit authority to ban noncompetes, although there have been several bipartisan bills introduced to reform noncompete agreements, including the Workforce Mobility Act sponsored by Sens. Chris Murphy (D-Conn.), Todd Young (R-Ind.), Tim Kaine (D-Va.) and Kevin Cramer (R-N.D.), and the Freedom to Compete Act sponsored by Sens. Marco Rubio (R-Fla.) and Maggie Hassan (D-N.H.).
The U.S. Chamber of Commerce, the largest pro-business lobbying group in the country, has said it will sue to block the rule.
Chamber President and CEO Suzanne Clark called the FTC vote to ban noncompetes “a blatant power grab that will undermine American businesses’ ability to remain competitive.”
“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” Clark said. “The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.”
While the dissenting commissioners said they did not support noncompete agreements carte blanche, they did not believe the agency had the authority to issue the rule without an express directive from Congress.
“Beginning with policy puts the cart before the horse,” FTC Commissioner Andrew Ferguson (R) said. “No matter how important, conspicuous and controversial the issue, and no matter how wise the administrative solution, an administrative agency’s power to regulate must always be grounded in the valid grant of authority from Congress. Because we lacked that authority, the final rule is unlawful.”
What’s next?
The FTC’s decision to ban noncompete agreements is a significant development that could have far-reaching implications for the U.S. workforce. However, it is important to note that the future of the rule is uncertain, as pro-business groups are expected to take legal action to block its implementation. It is also worth noting that Congress has not given the agency explicit authority to ban noncompetes. As a result, there are certainly more twists and turns to come in this saga.
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