FTC’s Ban on Noncompetes: What It Means for Workers
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Here's your money briefing for Friday, April 26. I'm Arianna Espuru for The Wall Street Journal, filling in for J.R. Whelan. On Tuesday, the Federal Trade Commission passed a ban on enforcing non-compete agreements for most employees.
decisions that our agency makes materially shape and impact the lives of Americans in countless ways.
And this rule in particular could affect workers' livelihoods and the viability of small businesses and startups. It's the first time in more than 50 years that the FTC has issued a regulation like this. So what does it mean for employees?
Workers have said that they do expect more freedom to move between positions or employers and just have more agency in their own careers.
We'll have more from Wall Street Journal reporter Lindsay Ellis after the break.
Listen at schwab.com slash washingtonwise.
A move this week by the Federal Trade Commission to ban non-compete agreements for employees could reshape the job market. WSJ reporter Lindsay Ellis joins me to discuss. Lindsay, what would this ban entail?
This new rule, which was passed earlier this week, blocks companies from enforcing existing non-compete agreements on anyone other than senior executives. And it also bans employers from issuing new non-compete contracts on workers, including senior executives in the future. And how did the FTC get to this point? The White House has been pushing up against non-competes for several years now. Last year, the FTC issued a plan to ban these clauses And, you know, in the public comment period, more than 20,000 people weighed in. Many of them were very supportive of this new rule.
What is the FTC's new rule banning noncompete agreements and who does it cover?
On Tuesday, the agency ultimately passed the measure. Democrats carried it on a three to two party line vote.
And what were some of the initial reactions to this passing?
Many workers and employees were extremely excited about this. Of the 20,000 plus comments that came in, the FTC says the vast majority were in support. I heard from hairstylists who were celebrating this, including one who said, She could have the mobility to leave a bad boss. I've heard from physicians and doctors who say that non-competes blocked their career opportunities in the past. And so from the worker perspective, there was a lot of excitement. From the corporate perspective, there was less excitement. And the Chamber of Commerce, for example, filed a lawsuit on Wednesday seeking to block the rule. Assuming it doesn't get blocked, when would this ban actually take effect? So the ban takes effect in August, about four months from when it was passed.
What types of workers will be impacted by this?
The FTC estimates that nearly one in five Americans are subject to a non-compete, and that's about 30 million workers. I've spoken with researchers out of Cornell University who analyzed companies' enforcement of non-compete clauses, and that research found that some of the top professions impacted are people in sales, engineers, doctors, and salon workers.
Why did the FTC decide to make this move?
The FTC is arguing that non-competes are in violation of a law that's more than 100 years old that prohibits unfair methods of competition. And basically the argument is that non-competes hamper competition for labor and ultimately lead to lower pay and worse benefits. And the agency is estimating that worker pay is going to grow by $400 billion or more over 10 years with restrictions on non-competes.
What are some of the main reasons why companies have their employees sign them?
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