U.S. Bans Non-Compete Agreements, Sparks Lawsuit Over Landmark Change To Employee Rights

On Tuesday, the Federal Trade Commission (FTC) voted to implement a ban on employee non-compete agreements — impacting millions of workers across the U.S.  

These contracts have been a common practice to prevent talented employees from moving to rival firms and sharing company insights. However, it’s also a practice that has long been criticized for restricting worker mobility, career growth, and suppressing wages. 

The FTC initially announced that it was seeking to ban noncompete clauses in January 2023. According to a report published by The Financial Times, the regulator’s commissioners voted 3-2 on Tuesday in favor of the ban.  

The prohibition is an update to labor regulations seeking to improve fair competition and employee rights/protections. The measure aligns with a wider movement to safeguard workers’ interests and tackle income inequality within the U.S. — a movement also contributing to a rise in organized labor in the country. 

According to a report published by Reuters, experts believe that the decision could have far-reaching implications, potentially prompting other nations to reevaluate their stance on non-compete clauses and possibly initiating a wave of reforms in global labor laws. 

On Wednesday, the U.S. Chamber of Commerce initiated a lawsuit against the FTC, claiming that the agency exceeded its legal authority, according to a report published by The New York Times.   

It’s reported the FTC ruling is set to become law 120 after it is published in the Federal register, which could be as soon as this week. However, analysts believe the decision could be in for a lengthy legal battle.  

A ban on non-compete agreements is expected to empower workers, and has notable impact on executives, which typically have strict noncompete policies, allowing them to freely pursue career opportunities and negotiate better compensation packages. 

This in turn would see the workforce ramping up competition for skilled talent due to rival companies making new offers for top performers. Also, eliminating the strict non-compete agreements could lead to an increase in new companies operating within the same industry as former employers — potentially leading to spike in intellectual property lawsuits.