FTC’s Proposed Noncompete Ban is a Victory for American Workers & Fair, Competitive Markets

On the heels of the Federal Trade Commission’s (FTC) recent 3-1 vote to initiate a rulemaking process to restrict the use of noncompete contracts, which often prohibit working people from taking a job at a competing or peer company for a certain period of time, the American Economic Liberties Project released the following statement.

“Millions of workers, future new business owners, everyday consumers, and the American economy overall will be better off because of the FTC’s vote today,” said Sarah Miller, Executive Director of the American Economic Liberties Project. “For too long, coercive noncompete agreements have unfairly denied millions of working people the freedom to change jobs, negotiate for better pay, and start new businesses. Today’s proposed rule makes clear that the use of noncompetes to undermine fair competition for workers and prevent new businesses from entering the market is also an illegal practice under the antitrust laws. Yesterday’s enforcement actions under Section 5 of the FTC Act makes clear the FTC means business.”

Noncompete agreements limit where employees can work after their tenure at a company and they are widely abused. Evidence suggests at least 18% of the workforce are subject to noncompete agreements upon signing a job offer. As President Biden has noted, “these aren’t just high-paid executives or scientists who hold secret formulas for Coca-Cola so Pepsi can’t get their hands on it…They’re construction workers, hotel workers, disproportionately women and women of color.”

Noncompetes have been shown to restrict wages and dampen entrepreneurship, reducing new-firm entry by as much as 18 percent. In fact, workers in states and industries with more noncompetes suffer from lower wages, less job mobility, and lower levels of job satisfaction, even when they themselves aren’t bound by such agreements.

In July 2021, as part of his Executive Order on Promoting Competition in the American Economy, President Biden encouraged the FTC to curtail the use of noncompete agreements. Chair Lina Khan explained why she hoped to do so last year, noting the agency felt “an enormous amount of urgency given how much harm is happening against the workers.”