FTC proposes rule that would ban employee noncompete clauses

The Federal Trade Commission proposed a rule Thursday that would ban U.S. employers from imposing noncompete clauses on workers, a sweeping measure that could make it easier for people to switch jobs and deepen competition for labor across a wide range of industries.

The proposed rule would prevent employers from imposing contract clauses that prohibit their employees from joining a competitor, typically for a period of time, after they leave the company.

Advocates of the new rule argue that noncompete agreements contribute to wage stagnation because one of the most effective ways to secure higher pay is switching companies. They argue that the clauses have become so commonplace that they have swept up even low-wage workers.

Opponents argue that by facilitating retention, noncompete clauses have encouraged companies to promote workers and invest in training, especially in a tight labor market.

During a Cabinet meeting, President Joe

Biden called the FTC action “a huge step forward in banning noncompete agreements that are designed simply to lower people’s wages.”

“These agreements block millions of retail workers, construction workers and other working folks from taking better jobs and getting better pay and benefits in the same field,” Biden said.

The FTC has moved aggressively to curb the power of major corporations under Chair Lina Khan, a legal scholar and Washington outsider whose appointment by Biden signaled a tough antitrust stance.

The agency estimates that the new rule could boost wages by nearly $300 billion a year and expand career opportunities for about 30 million Americans.

“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,” Khan said in a prepared statement.