FTC Bans Most Non-Compete Forms And Some Companies Are Upset About It

The Federal Trade Commission (FTC) pushed a bold vote to ban close to all non-compete forms — agreements employees sign that prevent them from joining competing businesses or launching their own. 

With a 3 to 2 vote on Apr. 21, FTC Chair Lina Khan referred to the number of horror stories she heard from workers after over 26,000 public comments came in months before the vote. “We heard from employees who, because of noncompetes, were stuck in abusive workplaces,” Khan said. 

“One person noted when an employer merged with an organization whose religious principles conflicted with their own, a noncompete kept the worker locked in place and unable to freely switch to a job that didn’t conflict with their religious practices.”

Approximately 30 million people, from minimum wage earners to CEOs, are tied in by noncompetes. The agency hopes the change will lead to an increase in wages — $300 billion per year — and encourages workers to move jobs more freely. However, some companies are not in agreement with the move. 

Less than 24 hours after the vote, the U.S. Chamber of Commerce and the Business Roundtable filed a lawsuit against the agency in federal court in the Eastern District of Texas, according to CNN. Another suit was filed by business tax services firm Ryan in the Northern District of Texas. 

The U.S. Chamber promised to pursue a lawsuit well before the vote, saying the FTC overstepped administrative authority by outlawing what they describe as “unfair methods of competition.” Dissenting commissioners Melissa Holyoak and Andrew Ferguson shared similar views. Holyoak predicted legal challenges and the the ban would eventually be struck down.

“The FTC contends that by using regulation, they can simply declare common business practices to be ‘unfair methods of competition’ and thus illegal. This is despite the fact that non-compete agreements have been around longer than the 110-year-old FTC, and until now no one has suggested that they are illegal,” a statement from the Chamber read. 

“If the FTC can regulate noncompete agreements, then they can decide to regulate or even ban any other business practice. All without a vote from Congress.”

Employment lawyer and DLA Piper partner Daniel Turinsky feels these suits are just the beginning. “We think it’s likely additional lawsuits could be filed,” he said.

The rule isn’t scheduled to go into effect until 120 days from publishing day in the Federal Register, more than likely in September 2024. However, that date is contingent upon other suits being filed or if the federal courts in Texas decide to grant a stay or preliminary injunction. The waiting period leaves both employers and employees up in arms regarding existing noncompete agreements, which would become unenforceable if and when the rule takes effect. 

In response to the Chamber’s lawsuit, Khan said she is confident in the rule and said the agency has “clear legal authority” to issue such a ban.

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