U.S. bans noncompete agreements for nearly all jobs

The Federal Trade Commission narrowly voted Tuesday to ban nearly all noncompetes, employment agreements that typically prevent workers from joining competing businesses or launching ones of their own.

The FTC received more than 26,000 public comments in the months leading up to the vote. Chair Lina Khan referenced on Tuesday some of the stories she had heard from workers.

"We heard from employees who, because of noncompetes, were stuck in abusive workplaces," she said. "One person noted when an employer merged with an organization whose religious principles conflicted with their own, a noncompete kept the worker locked in place and unable to freely switch to a job that didn't conflict with their religious practices."

These accounts, she said, "pointed to the basic reality of how robbing people of their economic liberty also robs them of all sorts of other freedoms."

The FTC estimates about 30 million people, or one in five American workers, from minimum wage earners to CEOs, are bound by noncompetes. It says the policy change could lead to increased wages totaling nearly $300 billion per year by encouraging people to swap jobs freely.

The ban, which will take effect later this year, carves out an exception for existing noncompetes that companies have given their senior executives, on the grounds that these agreements are more likely to have been negotiated. The FTC says employers should not enforce other existing noncompete agreements.

The vote was 3 to 2 along party lines. The dissenting commissioners, Melissa Holyoak and Andrew Ferguson, argued that the FTC was overstepping the boundaries of its power. Holyoak predicted the ban would be challenged in court and eventually struck down.

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Shortly after the vote, the U.S. Chamber of Commerce said it would sue the FTC to block the rule, calling it unnecessary, unlawful and a blatant power grab.

For more than a year, the group has vigorously opposed the ban, saying that noncompetes are vital to companies, by allowing them to better guard trade secrets, and employees, by giving employers greater incentive to invest in workforce training and development.

"This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy," wrote Suzanne P. Clark, president and CEO of the U.S. Chamber, in a statement.

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Transcript

MICHEL MARTIN, HOST:

Noncompete agreements - those are those employment agreements that prevent workers from taking a new job with a competitor or starting a competing business. There's a good chance that you or someone you know may be bound by one, but now they may be coming to an end. NPR's Andrea Hsu has more.

ANDREA HSU: Noncompetes are everywhere in America. An estimated 30 million workers have them, from janitors and security guards to doctors and CEOs. Companies say they're vital for protecting investments and trade secrets. But this week, the government is saying no more. In a 3-to-2 vote yesterday, the Federal Trade Commission approved a rule that bans noncompetes in nearly all jobs. Lina Khan, the Commission's chair, shared a few of the 26,000 comments submitted by the public.

(SOUNDBITE OF ARCHIVED RECORDING)

LINA KHAN: We heard from employees who, because of noncompetes, were stuck in abusive workplaces. We heard from physicians who served underserved areas of the country who explained how noncompetes restricted their ability to continue serving their patients.

HSU: One worker described how after a merger, they had issues with their company's religious principles. Because of a noncompete, that worker was stuck there. The rule prohibits new noncompetes and makes most existing ones unenforceable. There is one exception for senior executives, the rationale being they are more likely to have negotiated the terms of their agreements. Voting against the rule were the Federal Trade Commission's two Republicans - first, Andrew Ferguson.

(SOUNDBITE OF ARCHIVED RECORDING)

ANDREW FERGUSON: I do not believe we have the power to nullify tens of millions of existing contracts and to declare those contracts unlawful across the whole country, irrespective of their terms, conditions, historical contexts and competitive effects.

HSU: The other Republican, Melissa Holyoak, went as far to say the rule was unlikely to survive a legal challenge. And legal challenges are coming. The U. S. Chamber of Commerce has vowed to sue the Commission, calling its rule a blatant power grab.

Andrea Hsu, NPR News.

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Correction

Apr. 27th, 2024

An earlier version of this story misspelled FTC Commissioner Melissa Holyoak's last name.