FTC Proposes Ban On Noncompete Clauses

Photo: FTC Chair Lina Khan Photo Credit: New America / CC

The Center Square [By Brett Rowland] –

The Federal Trade Commission proposed a ban on noncompete clauses Thursday, which the FTC said were often exploitative and suppressed wages and competition.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” Chair Lina Khan said in a statement. “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.”

The federal agency said ending the practice of noncompete clauses could increase wages by almost $300 billion a year and expand career opportunities for about 30 million Americans. The FTC is seeking public comment on the proposed rule. The rule was based on a preliminary finding that such clauses constitute an unfair method of competition.

“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages – even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, director of the Office of Policy Planning. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”

The FTC’s proposed rule would make it illegal for an employer to:

• enter into or attempt to enter into a noncompete with a worker;
• maintain a noncompete with a worker; or
• represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

The proposed rule would apply to independent contractors and those who work for an employer, paid or unpaid. It also would require employers to rescind existing noncompetes and inform workers that they are no longer in effect.