The Federal Trade Commission has proposed banning the use of noncompete clauses in labor contracts, a move that would affect a large segment of the workforce.
The FTC, led by Chairwoman Lina Khan, announced the proposal on Thursday morning. Noncompete clauses are used to bar workers from employment with competitors for a certain period of time, sometimes months and years. The FTC contends that the practice is exploitative.
The commission voted 3-1 in favor of issuing the proposal, and the public will now have 60 days to weigh in on the plan.
“Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” Khan said. “By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation and healthy competition.”
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The FTC estimates that the move, if approved, would increase wages by $300 billion per year and would help the careers of some 30 million people. The FTC said preliminary findings are that noncompete clauses violate the Federal Trade Commission Act by constituting an unfair method of competition.
Noncompete clauses are used on a wide array of workers, ranging from hairdressers to business executives, as a way to hold on to labor. The proposal would end existing noncompete clauses in contracts and would require employers to “actively inform” workers that they are no longer under the auspices of the noncompete.
The U.S. Chamber of Commerce, the nation’s largest business group, asserted that banning noncompete clauses would stifle innovation and competition for businesses.
“Today’s actions by the Federal Trade Commission to outright ban noncompete clauses in all employer contracts is blatantly unlawful. Since the agency’s creation over 100 years ago, Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule,” said Sean Heather, the Chamber’s senior vice president for international regulatory affairs and antitrust.
This is not the first effort to restrict the use of noncompete clauses. About half of the states already have laws on the books that dial back the use of the contract agreements, according to the New York Times.
The FTC under Khan, a thought leader in what is known as the “hipster antitrust” movement, has not shied away from using its authority to try to rein in corporate power.
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Last year, the FTC attempted to block Meta’s acquisition of a virtual reality developer, with Khan moving to block the merger despite staff recommending against it. The FTC also filed a lawsuit against Microsoft to block it from acquiring Activision Blizzard.
