New federal rule would bar ‘noncompete’ agreements for most employees

U.S. companies would no longer be able to bar employees from taking jobs with competitors under a rule approved by a federal agency Tuesday, though the rule is sure to be challenged in court.

The Federal Trade Commission voted Tuesday 3-2 to ban measures known as noncompete agreements, which bar workers from jumping to or starting competing companies for a prescribed period of time. According to the FTC, 30 million people — roughly one in five workers — are now subject to such restrictions.

The Biden administration has taken aim at noncompete measures, which are commonly associated with high-level executives at technology and financial companies but in recent years have also ensnared lower-paid workers, such as security guards and sandwich-shop employees. A 2021 study by the Federal Reserve Bank of Minneapolis found that more than one in 10 workers who earn $20 or less an hour are covered by noncompete agreements.

When it proposed the ban in January 2023, FTC officials asserted that noncompete agreements harm workers by reducing their ability to switch jobs for higher pay, a step that often provides most workers with their biggest pay increases. By reducing overall churn in the job market, the agency argued, the measures also disadvantage workers who aren’t covered by them because fewer jobs become available as fewer people leave their positions. They can also hurt the economy overall by limiting the ability of other businesses to hire needed employees, the FTC said.