Biden administration bans noncompete agreements, setting up legal showdown with business groups
The Biden administration has issued a nationwide ban on the ability of employers to make their workers sign noncompete agreements, a move regulators said would help boost employee pay but which is set to be challenged in court by business groups.
The Biden administration has issued a nationwide ban on the ability of employers to make their workers sign noncompete agreements, a move regulators said would help boost employee pay but which is set to be challenged in court by business groups.
Lina Khan testifies during the House Energy and Commerce Subcommittee on Innovation, Data, and Commerce hearing at the Capitol, on April 18, 2023.Tom Williams / CQ-Roll Call, Inc via Getty Images fileIn a ruling Tuesday afternoon, the Federal Trade Commission (FTC) said noncompete clauses would henceforth be illegal. The measure was necessary, it said, for "protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation."
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism,” said FTC chair Lina M. Khan in a statement. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
The FTC estimates nearly one in five Americans are subject to noncompetes. They have grown increasingly common in lower wage or hourly work industries like fast food franchises, restaurants, and security firms, where some employers have sought to limit the ability of workers to effectively raise their pay by looking for work at competing establishments.
In addition to banning all new noncompetes, the FTC's rule applies to all existing noncompete agreements. Employers will now have to provide notice to workers bound to a current noncompete that it will not be enforced against them.
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