The Biden Administration has implemented a nationwide ban on non-compete agreements, despite opposition from business groups and congressional Republicans. The Federal Trade Commission (FTC) voted 3-2 to adopt the ban, labeling such agreements as an “unfair method of competition.” The FTC argues that non-competes are exploitative, suppress wages, and hinder innovation and competition. By banning them, the agency estimates that wages could increase by $300 billion per year and opportunities for over 30 million Americans would expand.
The ban has faced significant opposition from business groups and lawmakers who argue that it is a heavy-handed dictate from Washington that violates the spirit of federalism. They believe that non-compete agreements should be left to the discretion of employers and employees to enter into contracts voluntarily. Opponents also argue that the ban would invalidate tens of millions of existing contracts and undermine the rule of law.
The U.S. Chamber of Commerce has vowed to sue over the ban, believing that it is blatantly unlawful and exceeds the authority delegated to the FTC by Congress. The organization argues that non-compete agreements are an important tool for fostering innovation and preserving competition when appropriately used. However, the FTC claims that the majority of public comments it received during the comment period were favorable.
The final version of the ban includes an exception that allows non-competes between the seller and buyer of a business, but otherwise imposes a near-total ban on non-compete provisions. Existing non-competes entered into before the rule goes into effect will become non-enforceable for non-executive staff, while senior executives’ agreements will remain in force.
President Joe Biden praised the decision, stating that workers should have the right to choose who they work for. House Judiciary Democrats also hailed the move as a game changer for American workers.
The FTC estimates that roughly one in five Americans, totaling nearly 30 million people, are subject to non-compete agreements. By banning them, the agency believes it will spur innovation and new business formation, creating over 8,500 new businesses each year and generating between 17,000 and 29,000 more patents annually over the next decade. It also predicts that workers’ wages will grow by $524 per year on average and healthcare costs will decline due to reduced spending on physician services.
Overall, the ban on non-compete agreements implemented by the Biden Administration has sparked controversy among business groups and lawmakers. While proponents believe it will benefit workers and promote competition and innovation, opponents argue that it infringes on the rights of employers and employees to enter into voluntary contracts. The outcome of the legal battle between the U.S. Chamber of Commerce and the FTC remains to be seen, but the ban represents a significant shift in policy that could have far-reaching implications for the American economy.
