BREAKING: The FTC Just Banned Noncompete Agreements

One in five American workers are restricted by noncompetes. We spoke exclusively to FTC Chair Lina Khan about the landmark rule.

By Paul Blest, More Perfect Union

The Federal Trade Commission voted Tuesday to ban new noncompete agreements for all workers and make existing noncompetes null and void for everyone except senior executives. These agreements are used to restrict 30 million American workers from changing jobs or starting their own businesses due to claims that they could use “trade secrets” in their new roles. 

Noncompete agreements can restrict job mobility based on geographic area (i.e., a doctor joining a new practice within 50 miles of their old one) or a time period after leaving the position (anywhere between several months to more than a year). They have been banned in multiple states in the past few years. 

But the FTC has issued a uniform ban that will cover hundreds of millions of workers following a 180-day period for for-profit companies to enter into compliance. More than 26,000 comments were submitted on the rule, more than 25,000 of which supported a noncompete ban, FTC staff said Tuesday. 

The FTC estimated that the new rule will increase workers’ wages by up to $488 billion over 10 years, which FTC staff said would mean a $524 increase in annual wages for the average worker. The FTC also estimated that the rule would lead to more than 8,500 new businesses per year.  

“Right now workers are stuck in place because of these noncompetes,” FTC chair Lina Khan told More Perfect Union in an interview about the rule. “So even if they get a better job opportunity with higher wages, with better benefits, they can't actually switch jobs, which is bad for those workers. It's also bad for other workers who won't have the opportunities that are not being created because of these noncompetes.”

Watch our new interview with FTC Chair Khan:

Five states have passed bans on noncompetes, not including New York, where lawmakers passed a ban last year that was then vetoed by Gov. Kathy Hochul. After Oregon banned noncompete agreements in 2008, researchers found, average hourly wages for all workers were boosted by up to 3 percent; the same analysis found that low-wage workers subjected to noncompetes saw a substantial negative impact on their wages. 

The final rule differs from the proposal in that “senior executives,” those in a “policy-making position” making more than $151,000 per year, will still be subjected to noncompete agreements signed before the effective date of the new rule.

Since announcing the proposal in early 2023, the FTC’s rule has come under fire from the business lobby. The U.S. Chamber of Commerce said before Tuesday’s meeting that it will file a lawsuit to block the proposal as soon as Wednesday. A top Chamber official said earlier this week that the rule “opens up a Pandora’s box where this commission or future commissions could be literally micromanaging every aspect of the economy,” Bloomberg reported. 

But the FTC argues that noncompete agreements are “an unfair method of competition” that affect both high- and l0w-wage earners. In the medical profession, nearly half of all physicians are subject to noncompete agreements, according to the American Medical Association, which backs the effort to end the practice. (The FTC estimated that the new rule will result in “$74-$194 billion in reduced spending on physician services over the next decade.”)

“As a physician who has to live within thirty minutes of my workplace noncompete clauses will require me to uproot my family if I ever wanted to consider a new job,” one doctor said in a comment posted in February. “It limits my freedom to choose where I work when considering all aspects of life. It gives my current employer power in negotiating when negotiating my contract.”

And in a comment earlier this month, a one-time Home Depot worker who earned $11/hour encouraged the FTC to ban what they described as “harmful stipulations.”

“I spoke with the management of several Tool [sic] producers seeking employment as a Sales Rep and was told I would get the job if not for a noncompete agreement with Home Depot,” the commenter said. “So instead of doing the exact same thing for 70K plus bonuses, I was stuck in abject poverty trying to provide for my wife and disabled toddler.”

These experiences mirror much of the feedback the FTC received, Khan said. 

“We got comments from across the income level people making near minimum wage, but also people making tens of thousands of dollars or even hundreds of thousands of dollars, sharing stories about how noncompetes had been devastating for their lives,” Khan said. “We heard from doctors in rural America who shared how noncompetes really limit their ability to continue providing care for their patients if they ever look to change employers.”

“So this is having real-world effects harming Americans and harming their communities,” she added.