US agency poised to ban worker ‘noncompete’ agreements

By Thomson Reuters Apr 23, 2024 | 5:16 AM

By Daniel Wiessner

(Reuters) – The U.S. Federal Trade Commission (FTC) is expected on Tuesday to approve a rule that would ban agreements commonly signed by workers not to join their employers’ competitors, which it says limit worker mobility and suppress their pay.

The five-member FTC, which enforces antitrust laws and currently has a Democratic majority under President Joe Biden, is scheduled to meet later on Tuesday to vote on the rule first proposed in January 2023.

The FTC, Democrats and worker advocates who support the rule say it is necessary to rein in the increasingly common practice of requiring workers to sign so-called “noncompete” agreements, even in lower-paying service industries such as fast food and retail.

Major business groups representing an array of industries have criticized the proposal, saying noncompetes are a crucial way for companies to protect trade secrets and that they promote competitiveness.

The U.S. Chamber of Commerce, the country’s largest business lobby, has already said that it will sue the FTC as soon as Wednesday if the rule is approved. Neil Bradley, the Chamber’s chief policy officer, told reporters during a call on Monday that the commission lacks the power to adopt rules banning noncompetes or any other conduct that it deems anticompetitive.

“There is really no aspect of the U.S. economy they couldn’t regulate” if the noncompete rule is allowed to stand, Bradley said.

The rule would require companies with existing noncompete agreements to scrap them and to inform current and past employees that they will not be enforced. Daryl Joseffer, chief counsel at the Chamber’s litigation arm, said during Monday’s call that the rule’s retroactive nature also makes it invalid.

In proposing the rule last year, the FTC estimated that it could increase workers’ earnings by nearly $300 billion per year and would improve the job opportunities of 30 million Americans.

The commission’s chair, Biden appointee Lina Khan, said at the time that noncompetes block workers from freely switching jobs while depriving businesses of talent.

“By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition,” Khan said when the proposal was released.

California, Minnesota, Oklahoma and North Dakota have banned noncompete agreements and at least a dozen other states have passed laws limiting their use.

New York Governor Kathy Hochul, a Democrat, in December vetoed a bill that would have banned virtually all noncompete provisions in the state. Hochul said she would consider signing a bill that exempts higher-earning employees and executives.

(Reporting by Daniel Wiessner in Albany, New York; Editing by Aurora Ellis)