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The US Federal Trade Commission has voted to ban non-compete agreements, targeting contracts that limit employees’ freedom to leave their job for a new job with another employer.
The regulator’s commissioners voted 3-2 on Tuesday to implement the wide-ranging measure first proposed in January 2023 in a bid to stave off wage suppression and protect innovation. But this decision triggered an immediate legal reaction.
Noncompete agreements have become ubiquitous across industries, amid limited oversight and declining unionization, experts say. The FTC said about 30 million workers are subject to such contracts, which prohibit employees from working for a competitor or starting a competing business for a specific period of time or in a geographic area after leaving their job.
“Non-compete clauses keep wages low, suppress new ideas, and rob the U.S. economy of dynamism, including the more than 8,500 new start-ups that would be created each year once non-competes are banned.” , said Lina Khan of the FTC. chair. Non-competes constitute “unfair methods of competition,” she added.
The FTC estimates that the new rule will increase a worker’s average wage by $524 per year. The agency received more than 26,000 public comments on the issue, a sign of its importance to workers and their employers.
But the measure also inflamed industry groups who said it was too drastic and would increase costs while jeopardizing trade secrets.
The U.S. Chamber of Commerce announced it would sue the regulator, arguing that the agency lacked the constitutional and statutory authority to promulgate the rule, calling it a “blatant power grab” that ” sets a dangerous precedent for government micromanagement of businesses.”
The FTC declined to comment on the chamber’s decision.
Andrew Ferguson, one of two Republican FTC commissioners who voted against the rule, agreed with the argument that the agency lacked the authority from Congress to adopt the rule.
The expected lawsuit will deepen legal wrangling between U.S. companies and regulators appointed by President Joe Biden, who have ushered in tougher stances on rulemaking and enforcement.
Khan is part of a new generation of progressive officials who have adopted tougher antitrust policies in an effort to combat what they see as unchecked anticompetitive conduct.
The looming litigation is also expected to add uncertainty to businesses, some lawyers said.
“The question is: what are companies supposed to do now? said Russell Beck, a lawyer who served on a task force addressing the noncompete issue during the Obama administration.
He said the best course for businesses is to wait and see how the case plays out in court. “I think there will be many challenges until a judge issues a nationwide injunction barring enforcement of the rule.”
But Rachel Dempsey, an attorney at Towards Justice, a nonprofit law firm representing workers, said in a statement that noncompete agreements “keep workers stuck in low-wage jobs and poor conditions.” of work”.
This rule constitutes “a historic step towards protecting workers against employer abuses and empowering them to defend their fundamental rights in the workplace,” she added.