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The Federal Trade Commission (FTC) on Tuesday approved a regulation that would ban noncompete agreements nationwide on the grounds that they unfairly limit workers’ mobility and lead to lower pay.
The FTC, which currently has a Democratic majority under President Joe Biden, voted 3-2 to approve the final noncompete rule. The agency first proposed the ban on noncompete agreements in January 2023, arguing they unfairly limit competition.
Noncompete agreements generally prohibit an employee from leaving their current company to work for a competitor and are more commonly used in more senior positions. The FTC’s new rule would ban new noncompetes for all workers, including senior executives, as an unfair competitive practice.
Existing noncompetes would be treated differently for senior executives – defined as workers in a “policy-making position” who earn over $151,164 annually – as they could remain in effect for senior executives, while noncompetes for other workers would become unenforceable following the rule’s adoption.
FTC PROPOSES RULE FOR NATIONWIDE BAN ON NONCOMPETE CLAUSES FOR WORKERS
Federal Trade Commission Chair Lina Khan first proposed the noncompete ban in January 2023. (Photo by Chip Somodevilla/Getty Images / Getty Images)
Business groups and Republican lawmakers have opposed the FTC’s rule, arguing that noncompetes are a critical tool for companies to protect trade secrets and that they promote competitiveness.
“Time and time again, this Administration has failed to consider Main Street’s best interests when imposing new rules and regulations,” House Small Business Committee Chairman Roger Williams, R-Texas, told .
“This proposed rule from the FTC will stifle the innovation coming from our entrepreneurs. Without noncompete clauses, large corporations can poach talent away from trailblazing small businesses,” he added. “We wrote to Chair Khan last month regarding this issue and received a high level response but remain concerned that the FTC is not properly considering small businesses in this rule.”
The Democrat-controlled FTC argues that noncompete clauses hurt workers’ mobility and earning potential. ((PAUL J. RICHARDS/AFP via Getty Images) / Getty Images)
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The FTC’s rule is expected to draw legal challenges. The U.S. Chamber of Commerce, the nation’s largest business lobbying group, has said it plans to sue to block the FTC’s noncompete rule as early as Wednesday.
This is a developing story. Please check back for updates.
Reuters contributed to this report.