Following Crackdown, FTC Proposes Rule to Ban Non-Compete Clauses

Just one day after announcing actions that nullified non-compete agreements for employees of three companes, the Federal Trade Commission (FTC) has revealed its proposal to ban non-compete agreements generally nationwide.

The agency estimates the ban could increase wages by almost $300 billion per year and expand career opportunities for around 30 million Americans.

“Companies use noncompetes for workers across industries and job levels, from hairstylists and warehouse workers to doctors and business executives,” a press release said. “In many cases, employers use their outsized bargaining power to coerce workers into signing these contracts.”

The FTC said the rule change is based on a preliminary finding that noncompetes are an unfair method of competition and violate Section 5 of the Federal Trade Commission Act.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina M. Khan. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

In addition to banning non-competes for employees and independent contractors, the proposed change would also require employers to end existing noncompetes and inform workers that they are no longer in effect.

“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages—even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, Director of the Office of Policy Planning. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”