FTC Implements Ban on Noncompete Agreements Restricting Job Mobility

The Federal Trade Commission (FTC) has taken a groundbreaking step by banning employers from utilizing noncompete contracts for the majority of workers, a move applauded by labor advocates but contested by business groups. This departure from its traditional law enforcement role signifies a significant shift towards mandating economy-wide changes in competitive practices. The rule, approved by the FTC’s Democratic majority in a 3-to-2 vote, marks the first time in over 50 years that the commission has issued a regulation of this magnitude.

FTC Chair Lina Khan has underscored the significance of the new rule, which restricts companies from enforcing existing noncompete agreements on anyone other than senior executives and prohibits the imposition of new noncompete contracts on senior executives in the future. Khan emphasized that the rule seeks to restore economic liberty to Americans by addressing concerns about the detrimental impact of noncompete clauses on labor competition and mobility. By limiting the scope of noncompete agreements, the FTC aims to empower workers to pursue career opportunities more freely and foster a more dynamic and competitive labor market.

The Biden administration’s commitment to robust antitrust enforcement has catalyzed the advancement of the noncompete rule, reflecting a broader agenda aimed at addressing corporate consolidation and bolstering labor protections. By prioritizing the interests of workers, this regulatory initiative aligns with the administration’s overarching goal of promoting economic fairness and opportunity.

Under the new rule, which marks a significant departure from previous practices, the FTC prohibits companies from enforcing existing noncompete agreements on anyone other than senior executives. Furthermore, it prohibits the imposition of new noncompete contracts on senior executives in the future. This shift underscores the FTC’s recognition of the detrimental impact of noncompete clauses on labor competition and mobility.

The FTC’s intervention in banning noncompete agreements marks a notable shift in federal policy towards addressing the widespread impact of such agreements on workers across diverse industries. Traditionally regulated at the state level, noncompete agreements have constrained workers’ mobility and entrepreneurship, particularly affecting professions like sales, engineering, and salon services. By prohibiting noncompete agreements for most workers and limiting their enforcement to senior executives, the FTC aims to enhance labor market competition and empower workers to pursue career opportunities more freely. This federal intervention complements existing state regulations and underscores the growing recognition of the need to protect workers’ rights and promote economic mobility on a national scale.

Under Chair Lina Khan’s leadership, the FTC has expanded its focus beyond traditional antitrust enforcement to address broader issues affecting worker welfare. One notable initiative has been the agency’s scrutiny of mergers that pose a threat to labor union bargaining power. By challenging mergers that could dilute the ability of labor unions to negotiate for better pay and benefits, the FTC aims to safeguard workers’ interests and promote fair competition in the labor market.

This shift towards prioritizing worker welfare in antitrust enforcement signals a departure from previous approaches that primarily focused on consumer welfare. Khan has emphasized the need to reevaluate antitrust policy to better protect workers from anti-competitive practices and market concentration. By actively engaging with labor issues and advocating for workers’ rights, the FTC under Khan’s leadership is working to rebalance the scales in favor of workers in an increasingly concentrated economy.