FTC intends to ban noncompete clauses that bind 30 million US workers

The Federal Trade Commission today proposed a rule that would prohibit employers from imposing noncompete clauses on workers.

The FTC stated in a fact sheet that noncompetes prevent workers from seeking better jobs and prevent employers from hiring qualified workers bound by these contracts.

The chair of the FTC wrote that noncompetes undermine economic liberties. Even for workers who are not subject to a noncompete, earnings and opportunity are suppressed. The FTC estimates that noncompetes lower US workers' income by hundreds of billions of dollars a year.

Khan said that locking workers in place can allow incumbents to close off markets to new competitors.

Employers would have to rescind existing noncompetes

It would be illegal for an employer to enter into or attempt to enter into a noncompete with a worker under the proposed rule, according to the FTC.

Employers will have to inform workers that they are no longer in effect if they want to keep their jobs. Anyone who works for an employer whether paid or not would be covered by the proposed rule.

A noncompete clause is a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker's employment with the employer.

Many jobs and industries would be affected by a non-compete ban. The FTC said that companies use noncompetition for workers across industries and job levels. Employers often use their bargaining power to get workers to sign these contracts.

The FTC pointed to a case in which a former executive of Amazon was sued for violating a non-compete agreement when he joined a tech startup. The FTC said that Amazon dropped the suit. Smartsheet exceeded $500 million in revenue under the leadership of Gene.