The Federal Trade Commission (FTC) voted 3-2 Tuesdays should prohibit non-compete agreements that prevent employees from working for competitors or starting a competing business after leaving the job.
The FTC has rated everyone from fast food workers to CEOs 18 percent of the American workforce 30 million people – covered by non-compete agreements.
The final rule would prohibit new non-compete agreements for all workers and require companies to notify current and former employees that they will not enforce them. Companies would have to throw out existing non-compete agreements for most employees, although in a change from the original plan, contracts would remain in place for senior executives.
« It's so shallow and unfair that people are stuck in jobs they want to leave, not because they don't have better alternatives, but because non-competes prevent another company from competing fairly for their labor, forcing workers to leave their jobs or their homes instead, » said the FTC commissioner. Rebecca Slaughter (D) said in prepared remarks.
The new rule takes effect 120 days after it is published in the Federal Register. But its future remains uncertain, as pro-business groups opposed to the rule are expected to take legal action to block its implementation.
Trade groups say noncompete agreements are important for protecting proprietary information and intellectual property, though the rule does not prohibit other methods of protecting that information, including nondisclosure and confidentiality agreements. They also question the agency's authority to issue a blanket, retroactive ban.
Despite the introduction of several bipartisan bills to reform noncompete agreements, Sens. Chris Murphy (D-Conn.), Todd Young (R-Ind.), Tim Kaine (D-Va.) and Kevin Kramer (RN.D.), and Sens. Freedom to Compete Act sponsored by Marco Rubio (R-Fla.) and Maggie Hassan (DN.H.).
The US Chamber of Commerce, the nation's largest pro-business lobby group, has said it will file a lawsuit to block the rule.
Although the dissenting commissioners said they did not support noncompete agreements, they did not believe the agency had the authority to issue the rule without an express order from Congress.
« Starting with policy puts the cart before the horse, » said FTC Commissioner Andrew Ferguson (R). « No matter how important, obvious, and controversial the issue, and no matter how clever the administrative solution, an executive agency's regulatory authority must always rest on the valid authority of Congress. Because we lack that authority, the final rule is illegitimate.
The case will be the latest battle between the business community and President Biden's administration, with agencies including the FTC taking steps to crack down on corporate price gouging, dumping fees and anti-competitive behavior. Last month, the Chamber filed a lawsuit challenging a Consumer Financial Protection Bureau rule capping credit card late fees at $8 for major issuers.
The Biden administration, Democrats and labor advocates have argued that noncompete agreements restrict the mobility of workers, lower their wages and harm entrepreneurship and competition in the U.S. economy.
When the FTC first proposed the rule in January 2023, it estimated it would increase revenue by nearly $300 billion each year. FTC Chairwoman Lina Kahn told reporters Tuesday morning that about 25,000 of the 26,000 public comments the agency received supported the plan, with health care workers making up « a pretty significant portion. »
These policy battles play out against the backdrop of the 2024 presidential election, as Biden aims to draw distinctions between himself and former President Trump, the presumptive Republican nominee.
According to national polling averages analyzed by The Hill and Decision Desk HQ, Biden and Trump are neck and neck. But the incumbent is trying to change negative perceptions of his handling of the economy, which voters say his predecessor handled better.
Only 38 percent of voters surveyed rated the economy as good under Biden, compared with 65 percent who said it was good under Trump. CBS News poll 2,159 US adults were released in March.
Although inflation has slowed significantly from its peak of 9 percent in June 2022 to 3 percent in recent months, high prices remain on the minds of many voters. A CBS News poll found that 17 percent of voters surveyed believe Biden's policies will help lower prices, compared with 44 percent who think Trump's will.
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