U.S. companies would no longer be able to bar employees from taking jobs with competitors under the ban approved by the FTC, though the rule is sure to be challenged in court.
Lina Khan, then a nominee for Commissioner of the Federal Trade Commission, speaks during a Senate Committee on Commerce, Science, and Transportation confirmation hearing on Capitol Hill in Washington, April 21, 2021.
The Biden administration has taken aim at noncompete measures, which are commonly associated with high-level executives at technology and financial companies but in recent years have also ensnared lower-paid workers, such as security guards and sandwich-shop employees. A 2021 study by the Federal Reserve Bank of Minneapolis found that more than one in 10 workers who earn $20 or less an hour are covered by noncompete agreements.
“Noncompete clauses keep wages low, suppress new ideas and rob the American economy of dynamism,” FTC Chair Lina Khan said. “We heard from employees who, because of noncompetes, were stuck in abusive workplaces.”Business groups have criticized the measure as casting too wide a net by blocking nearly all noncompetes. They argue that highly paid executives are often able to win greater pay in return for accepting a noncompete.
“Noncompete agreements are either upheld or dismissed under well-established state laws governing their use,” said Suzanne Clark, the chamber’s CEO. “Yet today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.”
John Lettieri, CEO of the Economic Innovation Group, a tech-backed think tank, argues that the ability of early innovators to leave one company and start a competitor was key to the development of the semiconductor industry.
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