Biden administration bans non-compete agreements, stages legal showdowns with business groups

The Biden administration has banned employers nationwide from forcing their workers to sign noncompete agreements, a move that regulators say would help raise employee wages but should be challenged in court by business groups.

In a ruling released Tuesday afternoon, the Federal Trade Commission (FTC) said non-compete clauses would now be illegal. This measure was necessary, according to the text, to “protect the fundamental freedom of workers to change jobs, increase innovation and encourage the creation of new businesses”.

“Non-compete clauses keep wages low, suppress new ideas, and rob the U.S. economy of its dynamism,” FTC Chair Lina M. Khan said in a statement. “The FTC’s final rule prohibiting non-competes will ensure Americans have the freedom to seek a new job, start a new business, or commercialize a new idea.”

The FTC estimates that nearly one in five Americans is subject to a non-compete. They are increasingly common in industries with lower wages or hourly work, such as fast food franchises, restaurants, and security companies, where some employers have sought to limit workers’ ability to effectively increase their salary by looking for work in competing establishments.

In addition to prohibiting all new non-compete agreements, the FTC rule applies to all existing non-compete agreements. Employers will now have to inform workers bound by a current non-compete that it will not apply to them.

The rule was praised by labor groups and left-wing political pundits.

“Non-competes are about reducing competition, period. It’s in the name,” said Heidi Shierholz, president of the Economic Policy Institute, a progressive nonprofit. “Non-competes are bad for workers, for consumers and for the economy as a whole. This rule is an important step in creating an economy that is not only strong, but also works for workers.”

The AFL-CIO, America’s largest labor group, welcomed the new rule in an article published Tuesday, saying noncompete agreements “prevent workers from finding better jobs, drive down wages and stifle competition”.

But business groups are already speaking out against the ban, saying noncompetes are essential to protecting trade secrets and proprietary information. The groups also say noncompetes ultimately help workers by creating a more collaborative business environment and limiting so-called “free riders,” i.e., employees who seek to capitalize on the methods of a specific company and transfer that knowledge elsewhere.

The U.S. Chamber of Commerce, the nation’s largest business lobby, announced plans to sue the FTC over the decision. In a statement, he called the ban an “illegal power grab.”

“This decision sets a dangerous precedent for government micromanagement of businesses and can harm employers, workers and our economy,” he said.

Separately. A Dallas-based tax services firm filed a lawsuit in a Texas federal court — which has proven hostile to the Biden administration’s decisions — challenging not only the ban but also the very structure of the FTC it -even.

“We remain steadfast in our commitment to serving the legitimate interests of each company, maintaining its proprietary formulas for success taught in good faith to its own employees,” Chairman and CEO G. Brint Ryan said in a statement.

The FTC rule is expected to take effect in August, but it is unlikely to be enforced until legal challenges are resolved, which could take years.

This article was originally published on NBCNews.com