The US Federal Trade Commission (FTC) decided on Tuesday to outlaw the practice of for-profit companies requiring their workers to sign contracts that contain noncompete provisions, a measure expected to impact tens of millions of workers nationwide.
The five commissioners voted on Tuesday afternoon, by a margin of 3 to 2
According to FTC estimates, one in five US workers – or 30 million people – have a noncompete provision in their present employment. The agency claims that for the majority of them, such a condition prevents from freely changing professions, reduces pay, discourages innovation, prevents company owners from launching new ventures, and erodes fair competition.
The new norm prohibits companies from giving out new noncompete agreements to anybody, and it renders any noncompete agreements that already exist void 120 days after the rule’s Federal Register publication. Nonetheless, the rule allows present noncompete agreements to continue for senior executives – namely those in “policy-making positions” who earn more than $151,164 per year.
The nationwide prohibition would take precedence over state rules pertaining to noncompete agreements. Four states already enacted near-complete bans, namely California, North Dakota, Oklahoma, and Washington, D.C. Others, like Colorado, Maryland, Oregon, and Rhode Island, allow them but only under specific restrictions, like limiting them to high-wage earners.
“The FTC is cracking down on ‘non-compete agreements,’ contracts that employers use to prevent their workers from changing jobs even if that job will pay a few dollars more, or provide better working conditions. Workers ought to have the right to choose who they want to work for,” President Joe Biden stated shortly after the announcement.
The regulation was deemed “unlawful” and “(unlikely to) survive legal challenge” by the two FTC commissioners who dissented from the majority. The US Chamber of Commerce has already said that it intends to sue the FTC as soon as this week because it believes the agency has overreached its administrative jurisdiction.
Employment attorneys anticipate legal resistance from business associations and employers, which may postpone the rule’s implementation while it is contested in court and, in the event that the FTC’s lawsuit is successful, stop it from ever taking effect.
