FTC Proposes Ban on Non-Compete Clauses for Workers

The Federal Trade Commission (FTC) proposed a ban on noncompete clauses that restrict workers from leaving for better jobs at rival firms companies, saying that eliminating curbs that affect one in five American workers will increase wages by at least $250 billion a year.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina Khan. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

The FTC voted 3-1 to propose the rule, with the commission's lone Republican objecting. The proposed ban exceeds the commission's authority and "will lead to protracted litigation in which the commission is unlikely to prevail," Commissioner Christine Wilson wrote in her dissent.

The action follows a recent policy change signaling the commission's intent to aggressively target anti-competitive practices, and a 2021 executive order by President Joe Biden calling on the FTC "to curtail the unfair use" of noncompete clauses. The Biden administration has pushed for increased protections of worker and labor union rights.

The FTC's proposed ban would end the non-compete agreements already in effect and bar new ones, including contract terms serving de-facto noncompete clauses such as overbroad nondisclosure agreements and training reimbursement obligations in excess of training costs.

The FTC invited public comment on the proposed rule over the next two months, and noted it may amend the rule before adopting it.

On Wednesday, the FTC announced consent agreements with two glass container makers including O-I Glass (OI) as well as a Michigan security company forcing them to drop noncompete restrictions on current and former workers.

The agency and foes of the noncompete clauses argue they depress wages not only for the affected workers but also for others not party to such agreements, in addition to restraining competition. Defenders of the clauses argue they protect employers from the loss of proprietary information and investments in training, and may in some cases correlate with higher wages.

The FTC cited the case of a security guard who lost his $15-per-hour job at a Florida bank after a previous employer who paid him $11 an hour invoked a two-year noncompete clause.

In another example used by the agency, Amazon (AMZN) sued an executive who left to work for a tech startup, dropping the case after it attracted media coverage.