Federal regulators have implemented a nationwide ban on new noncompete agreements, which restrict millions of Americans from changing jobs within their industries. The Federal Trade Commission voted to approve the new rule, which will ban noncompetes for all workers except senior executives when it takes effect in 120 days. The agency received thousands of complaints from people who had been negatively impacted by noncompetes, leading to the decision to enact the ban.
The ban on noncompete agreements is expected to impact tens of millions of workers, according to labor economist Heidi Shierholz. Noncompetes prevent employees from taking new jobs or starting their own businesses, limiting their economic freedom. President Biden directed the FTC to address the unfair use of noncompetes, which restrict employees from seeking work opportunities. The new rule is likely to face legal challenges, with the U.S. Chamber of Commerce previously calling it unlawful.
Noncompete agreements are often used by employers to protect trade secrets or other confidential information. However, the FTC staff found that corporations can protect their intellectual assets using other methods such as confidentiality agreements and trade secret laws, without resorting to noncompetes. The final rule does not affect existing noncompetes for senior executives, but it bans new noncompetes for these individuals due to concerns about stifling competition and discouraging entrepreneurship.
Low-paid workers, such as janitors, security guards, and phlebotomists, are particularly impacted by noncompete agreements. These entry-level workers are least likely to have access to trade secrets and are often restricted from leaving their jobs for better pay. The FTC’s decision to ban noncompetes for most workers aims to increase wages by nearly $300 billion annually and allow employees to seek better opportunities without restrictions.
The new rule from the FTC is a significant step towards protecting workers’ rights and promoting competition in the labor market. By eliminating noncompete agreements for most employees, the agency aims to enhance economic liberty and enable individuals to pursue better job opportunities. The ban on noncompetes reflects a broader effort to address unfair labor practices and empower workers to make choices that benefit them economically.
