The Federal Trade Commission is weighing a national ban on noncompete agreements — a move that would greatly expand the agency’s power over businesses if it survives a court challenge.
At the moment, agreements limiting an employee from going to work for an employer’s competitor are regulated at the state level, with individual jurisdictions allowed to create their own laws governing the practice.
Using that authority, the District of Columbia has essentially banned noncompete agreements, while in Virginia the ban can only apply to employees making more than $67,000 per year.
The Federal Trade Commission (FTC) wants to upend that patchwork in favor of a national ban. The agency argues the move is needed to protect workers and businesses from “unfair methods of competition.”
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina 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.”
Business groups say that the agency does not have the power to ban noncompete agreements at the federal level. They argue that only Congress has that authority and must either act on its own or pass legislation delegating that authority to the FTC.
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“They don’t have the authority to regulate noncompete agreements in any form or fashion,” said Neil Bradley, the chief policy officer for the U.S. Chamber of Commerce. “If they are allowed, it would set a new precedent that would allow the FTC to basically regulate any business practice that in its opinion was uncompetitive.”
The Chamber is already pledging to challenge the ban in federal court if the FTC moves forward. At the moment, the agency is holding public comment on the ban — a period that allows proponents and critics to submit arguments that will be used by the agency to make a final determination.
Lining up on the FTC’s side is a constellation of progressive groups and labor unions, including the AFL-CIO and the United Food and Commercial Workers Union. But it would be a mistake to define the fight as a proxy war between business and organized labor.
A labor lobbyist told The Washington Times that the ban would have a minimal impact on unions as they generally negotiate their own employment guidelines.
“If you’re an electrical worker belonging to a union, you’re most likely not going to be bound by a noncompete agreement,” said the lobbyist. “The same is true of most skilled labor workers, unless they’re white collar. Labor is backing this largely as a show of solidarity with workers everywhere.”
Proponents of the ban argue that noncompete agreements are not only unfair, but also stifle economic growth. FTC analysts estimate that banning the practice could see wages across America increase by nearly $300 billion per year as individuals find higher-paying jobs within a similar industry or use job offers to negotiate raises from current employers.
Overall, the FTC estimates banning the agreements could expand career opportunities for 30 million Americans.
“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 FTC office of policy planning.
Critics say the FTC’s estimates are unrealistic. They say that while noncompete agreements have been abused at times to impact entry-level workers, most states now have laws on the books that strike the appropriate balance.
“I think we’re very open to a conversation about preventing the illegitimate use of no-compete agreements,” said Mr. Bradley. “But that has to be done by Congress, not the FTC.”