(WASHINGTON, DC) – American companies will no longer be able to prohibit employees from taking jobs with competitors under a rule approved by a federal agency on Tuesday, although the rule will certainly be challenged in court.
The Federal Trade Commission on Tuesday voted 3-2 to ban measures known as non-compete agreements, which bar workers from joining or starting competing companies for a set period of time. According to the FTC, 30 million people – about one in five workers – are now subject to such restrictions.
The Biden administration is targeting non-compete measures, which are typically associated with high-level executives at technology and financial companies, but which in recent years have also ensnared lower-paid workers such as security guards and fast-food workers. A 2021 study by the Federal Reserve Bank of Minneapolis found that more than one in 10 workers earning $20 or less per hour are covered by non-compete agreements.
When proposing the ban in January 2023, FTC officials asserted that non-compete agreements harm workers by reducing their ability to change jobs in exchange for higher wages, a measure that often provides most workers with their biggest salary increases. By reducing overall turnover in the labor market, the agency argued, the measures also harm workers who are not covered by them because fewer jobs become available as fewer people leave their jobs. They can also hurt the broader economy by limiting the ability of other companies to hire needed employees, the FTC said.
The agency received around 26,000 comments on the proposal, most of them in favor. The rule, which does not apply to workers at nonprofit organizations, will take effect in six months unless blocked by legal challenges.
“We heard feedback from employees who, because of non-competes, were trapped in abusive workplaces,” FTC Chair Lina Khan said before the vote. Doctors were barred from practicing medicine after leaving their practices, she added.
Business groups criticized the move for casting too wide a net by blocking almost all non-competes. They also argue that the FTC does not have the authority to take such action. Two Republican appointees to the FTC, Melissa Holyoak and Andrew Ferguson, voted against the proposal. They said the agency was exceeding its authority by approving such a sweeping rule.
The U.S. Chamber of Commerce said it will sue to block the measure, a process that could prevent the rule from taking effect for months or years. And if former President Donald Trump wins the 2024 presidential election, his administration could withdraw the rule.
The FTC is banning noncompetes on the grounds that they constitute an “unfair method of competition,” but the Chamber says the law does not authorize the agency to regulate on those grounds.
“If they started exercising that authority, they would really be opening a Pandora’s box,” said Neil Bradley, the Chamber’s executive vice president. “There are literally no limitations on what people may one day decide is an unfair method of competition.”
Non-compete agreements are banned in three states, including California, and some opponents of non-compete agreements argue that California’s ban has been a key contributor to that state’s innovative technology economy.
John Lettieri, CEO of the Economic Innovation Group, a technology-backed think tank, argues that the ability of early innovators to leave a company and create a competitor was critical to the development of the semiconductor industry.
“The birth of so many important fundamental companies could not have happened, at least not in the same way or on the same schedule and definitely not in the same place, if it were not for the ability of entrepreneurs to develop themselves, to start their own business. companies, or go to a better company,” said Lettieri.
This story originally appeared on Time.com read the full story
