FTC bans noncompete contracts

If a noncompete is holding you back from shifting your job, then the Federal Trade Commission (FTC) has you covered. It voted 3-2 yesterday to ban noncompete contracts in the country—a move that would allow employees leaving a company to work for other firms without any time-period restrictions.

Usually set for senior-level employees with access to a company’s trade secrets, noncompete agreements prevent them from taking business and insider information to rival or other companies.

But in the past few years, corporations have started adding noncompete clauses to junior-level executives, too.

Noncompete agreements affect nearly one in five American workers, according to the FTC. The agency claims such contracts prevent workers from seeking jobs, restricting their mobility. It also affects their pay.

Lower-wage workers, including fast food and restaurant employees, hair stylists and fitness trainers, are often asked to sign these contracts.

A 2022 research by Cornell University professor Matt Marx finds that sales staff, engineers, doctors and salon workers are the most affected by noncompete job contracts.

Set to take effect in 120 days, the FTC ban is already facing opposition from the US Chamber of Commerce, which plans to sue the regulatory body.

The Chamber argues that a ban on noncompetes would leak business secrets and sensitive information and threaten a company’s intellectual property, affecting competition. It also says the ban is a gateway for the FTC to regulate all aspects of the US economy.

FTC Chair Lina Khan argues such contracts are “robbing people of their economic liberty.” She says it prevents workers, especially those with lower and middle incomes, from earning higher wages.

The noncompete ban would increase workers’ earnings by $400 billion or more over 10 years, estimates the FTC.