The Federal Trade Commission has proposed a rule that would ban noncompete clauses in the US labor market.
Noncompete clauses are a common part of many employment agreements, barring an individual from working for a competing company when their employment ends. The FTC believes that eliminating such agreements would add some $300 billion per year to workers’ earnings.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina M. Khan. “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. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
At a time when tens of thousands of workers are being laid off, eliminating noncompete agreements would expand employment opportunities for 30 million Americans, many of them in the industries hardest hit by layoffs.
“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 new rule, which is open for public comment, would apply to employees, as well as “independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.”
