Business groups blast FTC decision to ban noncompete agreements

The Federal Trade Commission on Tuesday voted to ban noncompete agreements. The ban would prohibit new noncompete agreements for every employee and mandate that companies inform both current and former staff that they won’t be enforcing such agreements. Additionally, businesses will be obligated to revoke existing noncompete agreements for the majority of their employees. Senior level executives’ agreements, however, may remain intact. 

The FTC view

Commission members backing the ban argue that noncompete agreements are unfair for workers. 

“It is so profoundly unfree and unfair for people to be stuck in jobs they want to leave, not because they lacked better alternatives, but because noncompetes preclude another firm from fairly competing for their labor,” FTC Commissioner Rebecca Slaughter (D) said. 

The chairwoman of the FTC argued that the ban will foster new business formation.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “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.”

Businesses strongly disagree

Business groups blasted the rule, arguing that noncompetes are important to the protection of intellectual property and that the FTC lacks the authority even to issue such a ban. 

Bills have been introduced in Congress to reform noncompete agreements, but no authority has been explicitly granted to the FTC. 

Suzanne Clark, president and CEO of the U.S. Chamber of Commerce said that the ban is “a blatant power grab that will undermine American businesses’ ability to remain competitive.”

Melissa Holyoak and Andrew Ferguson, two of the agency’s Republican commissioners, echoed these sentiments. 

“We are not a legislature,” Ferguson said. “I do not believe we have the power to nullify tens of millions of existing contracts.”

In a press release from the National Association of Manufacturers, the organization claimed that the ban is “Unprecedented and threatens manufacturers’ ability to attract and retain talent. In addition, today’s action puts at risk the security of intellectual property and trade secrets — anathema to an industry that accounts for 53% of all private-sector R&D.” 

The Arizona Chamber of Commerce & Industry called it “federal overreach at its finest.”

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Arizona Chamber President and CEO Danny Seiden in a column last year when the ban was originally floated by the FTC, said, “The proposed rule stretches the agency’s mission to the point of absurdity and seeks to unilaterally reinterpret the section of the Federal Trade Commission Act on ‘unfair methods of competition,’ never mind what the pesky legislative branch or the 50 states might have to say on the subject.”