In a groundbreaking decision, federal regulators are on the brink of outlawing most noncompete agreements, which currently restrict millions of Americans — from entry-level employees to corporate executives — from transitioning between jobs within their respective industries.
The Federal Trade Commission is poised to give the green light to the new regulation on Tuesday afternoon. The potential ramifications are significant for the vast number of workers, according to Heidi Shierholz, a labor economist and president of the Economic Policy Institute, a progressive think tank.
"For nonunion workers, their sole bargaining chip is the ability to resign from their current position," Shierholz explained to CBS MoneyWatch. "Noncompete agreements not only limit job mobility but also hinder individuals from pursuing entrepreneurship."
Following the proposal of a new regulation that would prohibit employers from enforcing noncompete agreements on employees, the FTC has received over 26,000 public comments on the proposed rules. The final regulation under review "would generally forbid most employers from utilizing noncompete clauses," as stated by the FTC in a recent announcement. The specific circumstances under which such restrictions would still be considered lawful remain uncertain.
The agency's action comes more than two years after President Biden directed the agency to "curtail the unfair use" of noncompetes, under which employees effectively sign away future work opportunities in their industry as a condition of keeping their current job. The president's executive order urged the FTC to target such labor restrictions and others that improperly constrain employees from seeking work.
Still, assuming the FTC approves the proposed rule, it is virtually certain to be challenged in court, with the U.S. Chamber of Commerce in the past calling it "blatantly unlawful. The trade group, which advocates for U.S. corporations and businesses, did not immediately respond to a request for comment.
"The freedom to change jobs is core to economic liberty and to a competitive, thriving economy," FTC Chair Lina Khan said in a statement making the case for axing noncompetes early last year. "Noncompetes block workers from
Noncompete agreements have become increasingly popular as a way to protect business information from competitors, according to Shierholz. A well-known example is the case involving Jimmy John's restaurants.
However, these restrictive agreements disproportionately impact low-wage workers such as janitors, security guards, and phlebotomists. These employees may be prohibited from seeking better-paying jobs, even though they are unlikely to have access to sensitive trade secrets.
