New FTC Proposal Could End Noncompete Agreements

As the first week of 2023 came to a close, the Federal Trade Commission (FTC) proposed a paradigm-shifting rule that could change employment in the United States. The government regulator proposed a new rule prohibiting employers from including noncompete agreements in new employment contracts. The federal agency has not only called this practice exploitative but has recognized–and has now publicly declared–it is also widespread. After all, it could affect upwards of 30 million workers.

FTC Chair Lina M. Khan explains, “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy.” Khan says that noncomplete clauses stand in the way of a worker’s freedom to easily change jobs in search of better wages and/or working conditions. She also notes that this practice can deprive businesses of the right talent to expand effectively. Khan concludes, “By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

Indeed, noncompete clauses put specific restrictions on workers, discouraging them from quitting a job that is not fulfilling and taking a new job at a rival company. These provisions also prevent workers from starting a business of their own just because that business might happen to “compete” with their previous employer (within a specific time frame).

President Biden has even chimed in on this issue, noting that it does not only affect high-paying, white-collar industries like tech and banking, “executives or scientists who hold secret formulas.” He reinforces non-compete agreements affect about one in five workers [without a college degree], from construction to hospitality, and “disproportionately women and women of color.”

Enacting this measure can potentially increase the wages available to workers across the employment spectrum by as much as $300 billion annually. However, the proposed rule must now face a 60 days period for public comment, which could eventually affect its approval. During that time, the FTC will probably encounter many legal challenges, primarily over whether or not it has the inherent power to regulate these measures at the state level.