The Federal Trade Commission voted 3-2 April 23 to ban nearly all noncompete employment agreements that can prevent workers from joining competing businesses or launching businesses of their own.
The FTC received more than 26,000 public comments in the months leading up to the vote and according to chair Lina Khan 25,000 were opposed to the clauses.
“We heard from employees who, because of noncompetes, were stuck in abusive workplaces,” she said. “One person noted when an employer merged with an organization whose religious principles conflicted with their own, a noncompete kept the worker locked in place and unable to freely switch to a job that didn’t conflict with their religious practices.”
The rule allows currently existing noncompete agreements for senior executives to remain in force. The rule would go into effect 120 days after it is published in the federal register for existing and new noncompete clauses, but enforcement could be delayed by legal challenges. The U.S. Chamber of Commerce said it will sue the FTC for what it views as the agency exceeding its administrative authority.
The FTC estimates that 30 million workers, as many as one in five, are bound by a non compete clause. It stated that the rule change would increase business formation, wages and patents. It also argued there would be a decrease in health care costs.
According to the American Medical Association, between 37 percent and 45 percent of physicians are bound by a noncompete clause reducing competition and encouraging consolidation.
National Association of Manufacturers Managing Vice President of Policy Chris Netram released the following statement: “The FTC’s rule banning noncompete agreements is unprecedented and threatens manufacturers’ ability to attract and retain talent. In addition, today’s action puts at risk the security of intellectual property and trade secrets—anathema to an industry that accounts for 53% of all private-sector R&D.”
The FTC said in a press release that nondisclosure agreements and existing trade secret laws can protect businesses.
