FTC Strikes Down Employers’ ‘Non-Compete’ Agreements

The Federal Trade Commission, in a split vote, voted on Tuesday to remove the employer’s ability to enforce or enact a non-compete contract on their current or former workers. This would prevent them from working for competing companies or starting their own company, after leaving a position.

The FTC estimates that approximately 18 million Americans are covered by such agreements. This is equivalent to about 30 million people. This ruling will eliminate any new non-compete agreements and force companies to let their current and former workers know they will not enforce them.

They will also need to remove existing agreements with most employees. Senior executives may still be covered by the agreements.

In prepared remarks, FTC Commissioner Rebecca Slaughter said: “It’s so deeply unfree and unfair that people are stuck in jobs they don’t want, not because there were no other options, but because the noncompete clauses prevent another firm from competing fairly for their labor. This forces workers to leave their industry or home to survive.”

The FTC will publish its new rule in the Federal Register in 120 days. However, it’s fate is uncertain, as groups like the United States Chamber of Commerce have indicated their intent to sue to stop the rule from being implemented.

Chambers of Commerce and other pro-business groups say the rule is aimed at businesses who are trying to protect intellectual property or information. They also question the FTC’s authority to revoke agreements made before the vote to repeal the rule.

Chamber President and CEO Suzanne Clark referred to the FTC’s vote to ban noncompetes as “a blatant attempt to grab power that will undermine American business’ ability to stay competitive.”

Clark stated, “This decision can harm employers and workers and damage our economy.” The Chamber of Commerce will sue the FTC to stop this unjust and unnecessary rule. It will also warn other agencies that they will not be left out.

The two commissioners who disagree with the FTC say they are not in favor of non-compete agreements across the board. However, they believe the FTC does not have the authority to make such a decision without Congress first passing legislation.

Andrew Ferguson (R), the FTC commissioner, said: “Starting with policy is putting the wagon before the horse.” No matter how significant, controversial, or conspicuous the issue is, and no matter what the wise administrative solution may be, the power of an administrative agency to regulate must always rest on a valid grant from Congress. We lacked this authority and the final rule was illegal.”

Legal challenges against the FTC ruling would join the long list of legal challenges that have been brought by President Joe Biden to the administration over what is perceived as anti-business rules and policies that the FTC has implemented in the past few years. The FTC has issued rules that are intended to end alleged corporate price-gouging, junk fees, and anti-competitive practices.

The Chamber of Commerce filed a lawsuit against the Consumer Financial Protection Bureau just last month for adopting a rule that would limit late fees for credit cards to $8. This was for the largest card issuers.

Biden and his Administration have taken a perceived anti-business stance for a long time, arguing agreements like this stifle competition, lower wages, and limit the ability of employees to move about in the marketplace.

The ruling brings employee and employer rights to the forefront as the General Elections of 2024 are approaching. This ruling also shows the impact on the economy. When the rule was proposed in January 2023, it was estimated to generate $300 billion of annual earnings for employees. In the first few days after the rule was announced, 26,000 people submitted comments in support of it. According to FTC chair Lina Khan, these 26,000 comments constituted “the majority” of all comments.

In the presidential polls, former President Donald Trump is neck-and-neck with President Biden. The FTC ruling makes the election even more competitive, as both candidates have different policies when it comes to the economy and workers’ rights. The public’s perception of the economy is very negative under Biden. According to Brookings polling, Trump is the person who has the highest rating for the economy. Only 38% of respondents say that the economy under Biden is doing well.