The Federal Trade Commission on Thursday proposed a new rule that would block businesses from using noncompete agreements that limit their employees’ ability to work for a rival company after leaving their current jobs.
The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompete agreement and actively inform workers that these are no longer in effect.
The FTC said an estimated 30 million U.S. workers are bound by noncompete agreements that restrict them from pursuing better employment opportunities. The proposed rule that would end this practice would increase American workers’ earnings between $250 billion and $296 billion per year, the agency estimated.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina M. Khan. “Non-competes 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.”
Noncompete clauses also prevent new businesses from forming, stifle entrepreneurship, and prevent innovation that occurs when workers can broadly share their ideas, the FTC said.
The proposed rule would not apply to a non-compete clause that is entered into by a person selling a business entity or otherwise disposing of all ownership interest in the business entity, or by a person selling all or substantially all operating assets.
The FTC has opened a 60-day public comment period on the rule, which would take effect 180 days after the rule is finalized, barring any legal challenges.