The Federal Trade Commission (FTC) issued a decision this week that could significantly impact the American labor market. On Tuesday, April 23, 2024, the FTC voted on a final rule that would lift restrictions on workers from switching jobs within an industry. This rule, which effectively bans non-compete clauses, has been met with resistance from the Chamber of Commerce, the nation’s largest business lobby, which has vowed to immediately challenge the rule in court.

The Non-Compete Ban Prohibiting Their Use

Non-compete clauses are contractual agreements that prevent employees from working for a competitor or starting a similar business for a certain period after leaving their current employer. The FTC’s rule generally prohibits employers from using non-compete clauses. This includes independent contractors and anyone who works for an employer, whether paid or unpaid. The rule will also require employers to rescind existing non-competes and actively inform workers that they are no longer in effect.

The FTC has argued non-compete clauses unfairly block workers from switching jobs and undermine labor competition. They are seen as a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. The proposed final rule being considered would generally prevent most employers from using noncompete clauses.

The Chamber of Commerce’s Opposition to the Ban

The Chamber of Commerce has expressed its opposition to the ban, arguing that it’s overly broad and limits the ability of companies to protect confidential information. In a call with reporters, the Chamber’s Chief Policy Officer, Neil Bradley, said the FTC doesn’t have the authority to issue the rule. He argued that the rule “opens up a Pandora’s box where this commission or future commissions could be literally micromanaging every aspect of the economy.”

The Legal Showdown

The high-stakes legal showdown comes three years after President Biden signed an executive order encouraging the FTC to limit non-compete agreements, which affect roughly one in five Americans. The Chamber of Commerce plans to sue over the rule as soon as Wednesday. The meeting marks the first occasion that the FTC’s five members have met publicly since Republicans Melissa Holyoak and Andrew Ferguson joined the agency following their confirmation last month.

The outcome of this ruling and the ensuing legal battle could have far-reaching implications for workers and employers alike.