FTC Passes Rule Banning Noncompete Agreements

April 24, 2024

The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.

Federal Trade Commission Chair Lina Khan in a statement after the agency voted to ban noncompete agreements for most workers in the United States.

Noncompete Agreement: “A non-compete agreement legally binds a current or former employee from competing with an employer for a specific time after employment ceases” (Investopedia).

Why It Matters: The FTC estimates that around 30 million employees (about 18% of the nation’s workforce) are currently under noncompete agreements restricting them from switching employers within their respective industries. On Tuesday, the FTC voted 3-2, with the majority saying they believe “noncompete agreements suppress wages, stifle entrepreneurship and gum up labor markets,” The Washington Post explains. The rule will not take effect for at least 120 days; in the meantime, legal challenges from business groups against the rule are expected.

The U.S. Chamber of Commerce plans to sue the FTC. The Chamber’s President and CEO, Suzanne Clark, shared in a statement that the rule is “a blatant power grab that will undermine American businesses’ ability to remain competitive.” She added, “the Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.”

Read More: FTC votes to ban noncompete agreements (The Hill)

FTC bans contracts that keep workers from jumping to rival employers (The Washington Post)

by Emily Hooker, based in Texas