FTC issues non-compete ban as Chamber of Commerce lawsuit looms

The Federal Trade Commission voted Tuesday to adopt a near-total ban on non-compete provisions that prohibit workers from switching jobs within an industry, a rule the Chamber of Commerce vowed to immediately challenge in court.

The high-stakes legal showdown comes three years after President Joseph Biden signed an executive order encouraging the FTC to limit non-compete agreements, which affect roughly one in five Americans.

The antitrust and consumer protection agency released the text of its final rule Tuesday afternoon before debating and voting on it in an open meeting of the FTC’s five commissioners. The Chamber of Commerce, the nation’s largest business lobby, told reporters it plans to sue over the rule as soon as Wednesday.

The FTC first proposed a non-compete ban in January 2023, arguing the restrictions unfairly block workers from switching jobs and undermine labor competition. The proposal had the backing of labor organizations AFL-CIO and the Service Employees International Union, Democratic senators and attorneys general from California, Illinois and 17 other states.

But business groups oppose the ban, arguing that it’s overly broad and limits the ability of companies to protect confidential information.

The final rule is largely the same as the proposal released last year, according to a person familiar with the draft, and would bar the use of non-competes in most cases.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan in a statement. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

In a call with reporters Monday, the Chamber’s Chief Policy Officer Neil Bradley said the FTC doesn’t have the authority to issue the rule.

The rule “opens up a Pandora’s box where this commission or future commissions could be literally micromanaging every aspect of the economy,” Bradley said. “Agencies can’t exercise authority that Congress hasn’t given them. Congress has not given the FTC the ability to write regulations with respect to competition.”

Khan and the agency’s Democrats, however, maintained that the FTC does have authority to issue rules defining unfair methods of competition.

The last time the FTC issued a rule defining an unfair method of competition was in 1968, known as the Men and Boy’s Tailored Clothing Rule. The rule, repealed in 1994, required clothing companies to provide equal treatment in promotions to all sellers.