FTC Considers Banning Non-Competes

In a far-reaching move that could raise wages and increase competition among businesses, the Federal Trade Commission on Thursday unveiled a rule that would block companies from limiting their employees’ ability to work for a rival.

The NY Times reports the proposed rule would ban provisions of labor contracts known as noncompete agreements, which prevent workers from leaving for a competitor or starting a competing business for months or years after their employment, often within a certain geographic area. The agreements have applied to workers as varied as sandwich makers, hairstylists, doctors and software engineers.

Lina Khan

Studies show that noncompetes, which appear to directly affect roughly 20 percent to 45 percent of U.S. workers in the private sector, hold down pay because job switching is one of the more reliable ways of securing a raise. Many economists believe they help explain why pay for middle-income workers has stagnated in recent decades.

Other studies show that noncompetes protect established companies from start-ups, reducing competition within industries. The arrangements may also harm productivity by making it hard for companies to hire workers who best fit their needs.

The F.T.C. proposal is the latest in a series of aggressive and sometimes unorthodox moves to rein in the power of large companies under the agency’s chair, Lina Khan.

The public will be allowed to submit comments on the proposal for 60 days, at which point the agency will move to make it final. An F.T.C. document said the rule would take effect 180 days after the final version was published, but experts said it could face legal challenges.

The agency estimated that the rule could increase wages by nearly $300 billion a year across the economy. Evan Starr, an economist at the University of Maryland who has studied noncompetes, said that was a plausible wage increase after their elimination.