Business groups are rejecting the FTC’s decision to ban non-compete agreements

The Federal Trade Commission voted Tuesday to ban non-compete agreements. The ban would ban new non-compete agreements for any employee and require companies to notify both current and former employees that they will not enforce such agreements. In addition, companies will be required to revoke existing non-compete agreements for the majority of their employees. However, the senior level agreements can remain intact.

The FTC view

Commission members who support the ban argue that non-compete agreements are unfair to workers.

“It is so deeply unfree and unfair that people are stuck in jobs they want to leave, not because they don’t have better alternatives, but because noncompetitors prevent another company from competing fairly for their labor,” said FTC Commissioner Rebecca Slaughter ( D).

The FTC chairman argued that the ban will encourage the creation of new companies.

“Non-compete agreements keep wages low, stifle new ideas, and rob the American economy of dynamism, including the more than 8,500 new startups that would be created a year after non-compete agreements would be banned,” said FTC Chairman Lina M. Khan. “The FTC’s final rule banning non-competitors will ensure that Americans have the freedom to find a new job, start a new business or bring a new idea to market.”

Companies absolutely disagree

Industry groups have rejected the rule, arguing that non-compete agreements are important for protecting intellectual property and that the FTC does not even have the authority to issue such a ban.

Bills have been introduced in Congress to reform non-compete agreements, but no explicit authority has been given to the FTC.

Suzanne Clark, president and CEO of the U.S. Chamber of Commerce, said the ban is “a blatant power grab that will undermine the ability of American businesses to remain competitive.”

Melissa Holyoak and Andrew Ferguson, two of the agency’s Republican commissioners, echoed those sentiments.

“We are not a legislature,” Ferguson said. “I don’t believe we have the power to void tens of millions of existing contracts.”

In a press release from the National Association of Manufacturers, the organization claimed the ban is “unprecedented and threatens manufacturers’ ability to attract and retain talent. Furthermore, today’s action jeopardizes the security of intellectual property and trade secrets – anathema to an industry that accounts for 53% of all private sector R&D.”