The Federal Trade Commission on Tuesday banned employers from limiting their workers’ abilities to work for rivals, a sweeping change that the agency says could help raise wages and increase competition among businesses.
The move bars contracts known as noncompetes, which prevent workers from leaving for a competitor for a certain amount of time, in most circumstances. The agency has said the proposal would raise wages by forcing companies to compete harder for talent.
The proposal was approved by the agency in a 3-to-2 vote. Commissioners Melissa Holyoak and Andrew N. Ferguson, two Republicans, voted against the measure.
“The F.T.C.’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market,” the trade commission’s chair, Lina M. Khan, said in a statement. She estimated the decision would lead to 8,500 new start-ups created in a year.
The U.S. Chamber of Commerce vowed to sue the F.T.C. to block the proposal, calling it “an unlawful power grab” in a statement shortly after the decision. Employers have argued that noncompetes help protect trade secrets and other confidential information.
The rule would become law 120 days after it is published in the Federal Register, which will probably happen in a few days. But legal challenges could delay or block the change.
Noncompete clauses affecting senior executives can remain in effect, the commission said, but employers are banned from attempting to impose new noncompetes on any employee.
Studies have shown that noncompetes suppress wages because switching jobs is the most efficient way workers can increase how much they make.
“This would be an immediate shock that would allow millions of workers to be free to take a better job in their industry,” said Evan Starr, an economics professor at the University of Maryland. “I would expect the labor market to increase almost overnight.”
This is a developing story. Check back for updates.