The Federal Trade Commission (FTC) voted in favor of banning non-compete agreements that will bar tens of millions of employees from working for competitors or starting a competing business after they leave a job. 

According to the FTC, 18% of the US workforce is covered by non-compete agreements, which amounts to around 30 million people. 

The final rule will prevent new non-compete agreements for all workers and will mandate companies to allow current and past employees to know that they will not enforce them. Companies will also be required to dismiss existing non-compete agreements for most of its employees. However, in a change from the original proposal, the agreements will probably remain in effect for senior executives. 

“It is so profoundly unfree and unfair for people to be stuck in jobs they want to leave, not because they lacked better alternatives, but because non-competes preclude another firm from fairly competing for their labor, requiring workers instead to leave their industries or their homes to make ends,” FTC Commissioner Rebecca Slaughter (D) said. 

The new rule will be enforced 120 days after it’s published in the Federal Register. Although its future remains uncertain, pro-business groups opposing the rule are likely to take legal action to block its “implementation.”

Business groups argue that non-compete agreements are vital for protecting proprietary information and intellectual property. The rule however, will not ban other methods for protecting that information, such as non-disclosure and confidentiality agreements. 

Congress is yet to provide the agency explicit authority to ban non-competes, but there have been multiple bipartisan bills introduced to reform non compete agreements, which include the Workforce Mobility Act sponsored by Sens. Chris Murphy (D-Conn.), Todd Young (R-Ind.), Tim Kaine (D-Va.) and Kevin Cramer (R-N.D.), and the Freedom to Compete Act sponsored by Sens. Marco Rubio (R-Fla.) and Maggie Hassan (D-N.H.).

Chamber President and CEO Suzanne Clark remarked the FTC vote to ban non-competes as  “a blatant power grab that will undermine American businesses’ ability to remain competitive.”

“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” Clark said. “The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked,” she said.

When the FTC initially brought up the rule in January 2023, it claimed that the rule would raise earnings by almost $300 billion every year.  FTC Chair Lina Khan said that around 26,000 public comments received by the agency supported the proposal, with health care workers claiming that they are making up “a pretty significant chunk.”