The Federal Trade Commission (FTC) voted 3-2 Tuesday in favor of banning non-compete agreements nationwide, calling them an “unfair method of competition.”
In response, the United States Chamber of Commerce has announced its intention to sue the agency, calling the new rule “unlawful” and characterizing it as “a blatant power grab.”
Non-compete agreements are contractual agreements used by employers to limit the professional activities of current employees in the event they leave a company.
After this rule goes into effect, entering into non-compete agreements will be prohibited for all workers across the country, including senior executives.
As of the rule’s effective date, all existing non-compete agreements — except those in place for senior executives — will become unenforceable.
According to the FTC, senior executives are employees making at least $151,164 annually and that serve in a “policy-making position.”
The FTC estimates that less than one percent of workers will be classified as senior executives under the final rule.
In their press release Tuesday, the FTC lists several benefits they expect will be associated with the ban, including reduced health care costs, an increase in new business formation, a rise in the annual number of patents filed, and higher worker earnings.
Banning non-compete agreement was first proposed by the FTC in January of 2023 and is set to take effect later this year.
Click Here to Read the FTC’s Full Press Release
Immediately following the approval of this rule, the United States Chamber of Commerce issued a challenge, announcing their intention to sue the FTC in order “to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.”
The Chamber argued in a statement Tuesday that the FTC “has never been granted the constitutional or statutory authority to write its own competition rules.”
“Non-compete agreements are either upheld or dismissed under well-established state laws governing their use,” the Chamber wrote. “Yet, today, three un-elected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban non-compete agreements in all sectors of the economy.”
“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” the Chamber concluded.
Click Here to Read the United States Chamber of Commerce’s Full Press Release
Earlier this month, the Maine State Legislature sustained Gov. Janet Mills’ (D) veto of a bill that would have placed state-level restrictions on the enforceability of non-compete agreements in the state, effectively prohibiting them except under a few narrowly-defined circumstances.
LD 1496 — sponsored by Rep. Sophia B. Warren (D-Scarborough) — was introduced in 2023 and carried over into the current legislative session for consideration.
Under the version of the bill adopted by the Legislature, non-compete agreements would be enforceable only under certain circumstances, such as to protect trade secrets or if the employee had an ownership interest in their employer.
Current Maine law allows for non-compete agreements to be enforced if they are designed to protect trade secrets, confidential information, or the employer’s goodwill.
Non-compete agreements are prohibited, however, from being imposed upon employees earning 400 percent or less of the federal poverty level.
[RELATED: Scarborough Democrat Rips Mills for Backing “Feudal” Non-Compete Agreements]
In her veto letter to the Legislature, Gov. Mills noted these existing protections and criticized the effort to expand upon them as “unfair and contrary to public policy,” citing the utility of non-compete agreements for employers.
“LD 1496 would go well beyond that by rendering most non-compete agreements unenforceable, even when they are designed to protect a former employer’s confidential information from disclosure to commercial competitors,” Mills wrote. “This ignores the fact that non-compete agreements can be critical tools to prevent employees from taking unfair advantage of their former employers.”
“It would be both unfair and contrary to public policy to prohibit employers from requiring a commitment from their employees not to take what they have learned and immediately put that sensitive information to work for a competitor,” said Mills.
Mills also noted that the FTC was expected to vote on updated non-compete guidance by May, arguing that it would be “ill-advised” to proceed with new state-level restrictions in advance of the forthcoming federal guidance, particularly “with no demonstrated need and over the objections of Maine businesses.”
Click Here to Read Gov. Mills’ Full Veto Letter
“By vetoing the bill that sought to ban [non-compete] agreements,” Rep. Warren said in a statement to the Maine Wire, “the chief executive has inadvertently endorsed a practice that binds workers to their employers in an almost feudal manner, limiting their freedom to innovate, to grow, and to seek betterment elsewhere.”
“The rationale behind supporting non-compete agreements is often to protect businesses and their intellectual property,” Warren explained. “While this concern is valid, it overlooks the fact that there are other, less restrictive means of protecting business interests, such as confidentiality and non-disclosure agreements.”
“The decision to veto the bill prohibiting non-compete agreements is a missed opportunity for Maine to affirm its commitment to economic freedom, workforce mobility, and innovation,” Warren concluded. “I speak for this bill and against this veto because I believe we ought not be bound by the past, but instead, look forward to a future of growth, innovation, and opportunity for all Mainers.”
Click Here to Read Rep. Warren’s Full Statement to the Maine Wire
Given the forthcoming lawsuit from the United States Chamber of Commerce, the ultimate fate of the FTC’s new regulations is not yet clear. It remains to be seen how the impending legal battle will impact the rollout and implementation of these rules in the coming months.
I have long asserted that government has zero business regulating what are, in essence, private contracts between employer and employee . Bureaucrats know little to nothing about owning or running a successful private sector business . This is most certainly an overreach and must be reversed.
The same Chamber of Commerce that supported the election of today’s Communist Democrat government/dictatorship ?
Another government interference with freedom, this time freedom of contract. America prospered and rose to world leadership under laws that protected private property, freedom of contract, and capitalism. We continue to see the 100-year working out of the left’s campaign to destroy these.
Like the FTC gives a hoot about fairness. FTC-F*** The Capitalists. Gov’t intrusion at its best. Another useless, expensive gov’t agency butting in to everyone else’s business. Getting rid of this commission could save some money but then the gov’t would lose another way of controlling people and screwing them out of their money.