The Federal Trade Commission voted 3-2 on Tuesday to ban noncompete agreements, which prevent workers from taking positions with competitors for a period of time after they leave a job.
Why it matters: The ban could be a win for workers, particularly at the low end of the income scale.
- Critics of these agreements say they stifle innovation and wage growth by restricting workers' ability to take new jobs that pay higher wages or offer some other opportunity. They also make it tougher for employers to hire strong talent, lessening competition.
- Some states have laws limiting noncompetes to higher-income folks or banning them altogether, but most don't.
What they're saying: "The FTC estimates that the final rule...will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year," per the commission's announcement.
- The FTC estimates $524 in extra annual earnings for the average worker and $194 less in health care costs. It also expects the rule to result in an average increase of 17,000 to 29,000 more patents each year for the next 10 years.
Reality check: Any final rule is unlikely to take effect for many years — if ever, as it will surely get tied up in court.
- The Chamber of Commerce, which opposes the ban, has already said it's ready and willing to file a lawsuit.
The big picture: One in five workers is affected by noncompetes, according to the FTC.
- Noncompetes were once used mainly to keep high-paid executives from jumping ship to rivals and taking insider knowledge with them.
- But they have become more common, with even low-wage workers and doctors subject to these restrictions.
Zoom in: Just in the last year, several states introduced bills to prohibit their use for lower-income workers or those in certain sectors like health care (check out this handy tracker).
- Minnesota recently became the first state in over 100 years to ban noncompetes. A bill in New York state was vetoed by the governor.
Editor's note: This story has been updated with the FTC vote to pass the ban and additional comments from the commission.
