Current:Home > NewsSafeX Pro:FTC bans noncompete agreements, making it easier for workers to quit. Here's what to know. -Secure Growth Solutions
SafeX Pro:FTC bans noncompete agreements, making it easier for workers to quit. Here's what to know.
PredictIQ View
Date:2025-04-08 23:38:18
Federal regulators on SafeX ProTuesday enacted a nationwide ban on new noncompete agreements, which keep millions of Americans — from minimum-wage earners to CEOs — from changing jobs within their industries.
The Federal Trade Commission on Tuesday afternoon voted 3-to-2 to approve the new rule, which will ban noncompetes for all workers when the regulations take effect in 120 days. For senior executives, existing noncompetes can remain in force. For all other employees, existing noncompetes are not enforceable.
The antitrust and consumer protection agency heard from thousands of people who said they had been harmed by noncompetes, illustrating how the agreements are "robbing people of their economic liberty," FTC Chair Lina Khan said.
The FTC commissioners voted along party lines, with its two Republicans arguing the agency lacked the jurisdiction to enact the rule and that such moves should be made in Congress.
Within hours of the vote, the U.S. Chamber of Commerce said it would sue to block "this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked." The new rule would "undermine American businesses' ability to remain competitive," the trade group, which advocates for U.S. corporations and businesses, said in a statement.
Why it matters
The new rule could impact tens of millions of workers, said Heidi Shierholz, a labor economist and president of the Economic Policy Institute, a left-leaning think tank.
"For nonunion workers, the only leverage they have is their ability to quit their job," Shierholz told CBS MoneyWatch. "Noncompetes don't just stop you from taking a job — they stop you from starting your own business."
Since proposing the new rule, the FTC has received more than 26,000 public comments on the regulations. The final rule adopted "would generally prevent most employers from using noncompete clauses," the FTC said in a statement.
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.
"The freedom to change jobs is core to economic liberty and to a competitive, thriving economy," Khan said in a statement making the case for axing noncompetes. "Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand."
A threat to trade secrets?
An estimated 30 million people — or one in five U.S. workers — are bound by noncompete restrictions, according to the FTC. The new rule could boost worker wages by a total of nearly $300 billion a year, according to the agency.
Employers who use noncompetes argue that they are needed to protect trade secrets or other confidential information employees might learn in the course of their jobs. But corporations concerned about protecting their intellectual assets can use restraints such as confidentiality agreements and trade secret laws, and don't need to resort to noncompete agreements, the FTC staff determined.
The commission's final rule does not nullify existing noncompetes with senior executives, who are defined as those earning more than $151,164 a year and who hold a policy-making position. Those execs are much more likely to negotiate the terms of their compensation, according to regulators.
Still, the FTC is banning new noncompetes for senior executives on the grounds that the agreements stifle competition and discourage employees from creating new businesses, potentially harming consumers.
The idea of using noncompetes to keep business information out of the hands of rivals has proliferated, noted Shierholz, citing a notorious case involving Jimmy John's eateries.
Low-paid workers are now the hardest hit by restrictive work agreements, which can forbid employees including janitors, security guards and phlebotomists from leaving their job for better pay even though these entry-level workers are least likely to have access to trade secrets.
Real-life consequences
In laying out its rationale for banishing noncompetes from the labor landscape, the FTC offered real-life examples of how the agreements can hurt workers.
In one case, a single father earned about $11 an hour as a security guard for a Florida firm, but resigned a few weeks after taking the job when his child care fell through. Months later, he took a job as a security guard at a bank, making nearly $15 an hour. But the bank terminated his employment after receiving a letter from the man's prior employer stating he had signed a two-year noncompete.
In another example, a factory manager at a textile company saw his paycheck dry up after the 2008 financial crisis. A rival textile company offered him a better job and a big raise, but his noncompete blocked him from taking it, according to the FTC. A subsequent legal battle took three years, wiping out his savings.
Kate GibsonKate Gibson is a reporter for CBS MoneyWatch in New York.
veryGood! (1197)
Related
- Audit: California risked millions in homelessness funds due to poor anti-fraud protections
- 'He is not a meteorologist': Groundhog Day's Punxsutawney Phil should retire, PETA says
- Jon Stewart will return to ‘The Daily Show’ as host — just on Mondays
- New Jersey’s governor mourns the death of a sheriff who had 40 years in law enforcement
- Pressure on a veteran and senator shows what’s next for those who oppose Trump
- U.S. strikes Iranian-backed militias in Iraq over wave of attacks on American forces
- Washington state reaches $149.5 million settlement with Johnson & Johnson over opioid crisis
- Liberal blogger granted press credentials in Iowa House days after filing lawsuit
- 'No Good Deed': Who's the killer in the Netflix comedy? And will there be a Season 2?
- Cyprus rescues 60 Syrian migrants lost at sea for 6 days. Several have been hospitalized
Ranking
- USA men's volleyball mourns chance at gold after losing 5-set thriller, will go for bronze
- Abbott keeps up border security fight after Supreme Court rules feds' can cut razor wire
- Brewers agree to terms with former Phillies first baseman Rhys Hoskins, per report
- Dry January isn't just for problem drinkers. It's making me wonder why I drink at all.
- Meta releases AI model to enhance Metaverse experience
- 60-feet sinkhole opened in Florida front lawn, leaving neighbors nervous
- Vatican tribunal rejects auditor’s wrongful termination lawsuit in a case that exposed dirty laundry
- Attorney: KC man had 'no knowledge' 3 friends were dead in his backyard after Chiefs game
Recommendation
Sam Taylor
Score This $628 Michael Kors Crossbody for Just $99 and More Jaw-Dropping Finds Up to 84% Off
Judge Judy Reveals The Secret To Her Nearly 50-Year Long Marriage
A record-size blanket of smelly seaweed could ruin your spring beach trip. What to know.
Opinion: Gianni Infantino, FIFA sell souls and 2034 World Cup for Saudi Arabia's billions
Proud Boys member sentenced to 6 years in prison for Capitol riot role after berating judge
Biden to speak at United Auto Workers conference as he woos blue-collar vote in battleground states
Everything festival-goers should know about Bourbon & Beyond 2024 from lineup to ticket price