FTC Bans Noncompete Agreements, Could Impact Millions of Workers

Facts

• The US Federal Trade Commission (FTC) voted 3-2 to ban noncompete agreements — which prohibit employees from working for competing companies either in a specific geographic area or time frame — for an estimated 30M employees.¹
• The Democratic-majority panel's ruling bans companies from enforcing existing non-competes for all non-senior executive employees and prohibits them from writing new ones for future senior executives.²
• The FTC argues these contracts 'keep wages low,' 'suppress new ideas,' and block over 8.5K 'new startups' from emerging every year. It also claims the ban would increase average annual pay by $524 and 'lower health care costs by up to $194B over the next decade.'³
• The rule only applies to non-competes. It does not include other contract clauses such as nondisclosure and confidentiality agreements.⁴
• While the rule is set to take effect 120 days after it's in the Federal Register, pro-business organizations are expected to challenge it in court. Congress has never given the FTC authority over non-competes, but several laws have been proposed.⁴
• While the two dissenting Republicans on the FTC panel cited a lack of federal authority, pro-business groups claim it will hurt businesses trying to protect trade secrets. Three states have already passed their own non-compete bans, with a dozen others limiting their use.⁵

Sources: ¹ABC News, ²wsj.com, ³Federal Trade Commission, ⁴The Hill and ⁵Reuters.com.

Narratives

• Narrative A, as provided by NYSenate.gov. Noncompete contracts rarely protect company secrets. In fact, their primary function is to shackle employees to their existing companies by forcing them to switch careers or move far away to find a new job if they seek to leave — something most people can't afford to do. By prohibiting employees from starting their own businesses, these contracts also weaken competition. If we want employees and entrepreneurs to thrive, these agreements should be banned at all levels of business.
• Narrative B, as provided by Uschamber. Despite what these anti-business government officials claim, noncompete clauses actually promote competition and help, not hinder, employees. This is also an egregious, unconstitutional power grab by three unelected regulators who think they can decide what is and isn't a competitive market. The FTC has never been granted such overarching authority, which is why actual American business leaders will fight this in court.

Predictions