FTC’s Ban on Restrictive Noncompete Agreements Will Boost Wages, Unleash Entrepreneurship

In response to the release of a final rule from the Federal Trade Commission banning non-compete agreements, the American Economic Liberties Project, Farm Action and 10 other organizations released the following statements.
“FTC’s final rule removes a key mechanism of exploitation and corporate control over U.S. workers,” said Angela Huffman, President of Farm Action. “Noncompete clauses prevent workers from freely switching jobs, enabling corporations to hold workers hostage. This abusive practice leaves workers vulnerable to low wages and unsafe working conditions, and we applaud FTC for taking this bold action. This rule is a critical step for protecting our nation’s workers and making labor markets fairer and more competitive.”
“Backed by massive popular support, abundant evidence, and clear legal authority, the FTC has abolished a modern form of involuntary servitude that binds workers to their jobs and prevents them from leaving for greener pastures,” said Sandeep Vaheesan, Legal Director of the Open Markets Institute.
“The FTC’s final rule is a clear-cut win for American workers and entrepreneurs,” said Morgan Harper, Director of Policy and Advocacy at the American Economic Liberties Project. “For too long, corporations have used these restrictive clauses to block millions of working people from changing jobs, negotiating for better pay, or starting a new business. But after listening to the comments of thousands of entrepreneurs and workers of all income levels across industries on the proposed rule, the FTC has done the right thing and used their authority to ban these agreements. We’re thrilled to see this rule finalized, which won’t just improve working conditions and boost wages by more than $400 billion, but will catalyze innovation as millions of Americans are freed to bring their ideas to life and start their own business.”
“Non-compete agreements hinder entrepreneurship and create an unequal playing field for small businesses,” said John Arensmeyer, Founder & CEO of Small Business Majority. “Our research revealed that more than 1 in 3 small business owners were unable to hire an employee due to a non-compete agreement, and nearly half said they have been subject to a non-compete agreement that prevented them from starting or growing a business. At a time when workforce needs are front and center for small businesses, and with new business creation at an all time high, we’re thrilled the Federal Trade Commission has finalized its rule to ban non-compete agreements in most instances. This final rule will help ensure small businesses can hire more quality, talented workers and bring innovative ideas to the market without unfair barriers.”
“Many restaurant workers have been stuck at their job, earning as low as $2.13 per hour, because of the non-compete clause that they agreed to have in their contract. They didn’t know that it would affect their wages and livelihood. Most workers cannot negotiate their way out of a non-compete clause because non-competes are buried in the fine print of employment contracts. A full third of noncompete clauses are presented after a worker has accepted a job,” said Teofilo Reyes, chief of staff at the Restaurant Opportunities Centers (ROC) United. “Restaurant workers have risked their own lives and the health of their family so that people could eat or bring food to their tables. There are other employers that see how important our job is, and they are hiring for higher wages and better benefits. Yet, they couldn’t just leave their job because of the non-compete terms. The FTC proposed rule on banning non-compete terms would help millions of restaurant workers who may be in a similar bind; it would allow them to grow and increase their wages to support themselves and their loved ones. And they would no longer suffer from reduced wages and loss of professional growth opportunities.”
“Non-competes have enabled employers to suppress worker power for far too long,” said Rachel Dempsey, an attorney at Towards Justice. “These contracts keep workers trapped at jobs with low wages and poor working conditions, and let employers off the hook for providing jobs that workers want to stay at. The FTC rule banning them is a historic step towards protecting workers from employer abuse and empowering them to stand up for their basic rights in the workplace.”
“Non-compete clauses inflict devastating harms on tens of millions of workers across the economy,” said Lisa Gilbert, Executive Vice President Public Citizen. “The pervasive use of non-compete clauses limits worker mobility, drives down wages, keeps Americans from pursuing entrepreneurial dreams and creating new businesses, causes more concentrated markets, and keeps workers stuck in unsafe or hostile workplaces. Non-compete clauses are both an unfair method of competition and aggressively harmful to regular people. The FTC was right to tackle this issue and to finalize a strong rule.”
“Non-competes have long constrained workers and restricted their career choices,” said Emily Peterson-Cassin, Director of Corporate Power at Demand Progress. “We commend the FTC for taking a strong stance against this egregious use of corporate power, thereby empowering workers to switch jobs and launch new ventures, and unlocking billions of dollars in worker earnings.”
“Across the economy, corporations use debt as a tool to undermine worker mobility, inhibit a free labor market, and enhance corporate power,” said Student Borrower Protection Center Executive Director Mike Pierce. “Today the FTC recognized the harmful role debt plays in the workplace, including the growing use of Training Repayment Agreement Provisions or TRAPs, and took action to outlaw TRAPs and all other employer-driven debt that serve the same functions as non-compete agreements. The FTC’s non-compete rule will restore on-the-job training as a path to economic mobility, and empower millions of workers to bargain for better wages and working conditions, or freely leave for a better opportunity elsewhere.”
“Today’s milestone ushers in a new era of pro-worker antitrust enforcement, guaranteeing that employers can no longer exploit workers by limiting their future job prospects,” said Anna Aurilio, Senior Director of Campaigns of Economic Security Project. “Whether you’re a sandwich artist, a doctor, or a new CEO, the FTC’s ban on non-compete agreements ensures every worker can freely choose who they want to work for without constraint. Today’s decision will alleviate the economic pain felt by some 30 million American workers previously trapped in non-competes and will put up to $488 billion more in these workers’ pockets each year.”
“The only source of leverage non unionized workers have vis-à-vis their employers is their ability to quit and take a job somewhere else. Many employers are using noncompete agreements to cut that source of worker power off at the knees,” said Heidi Shierholz, President of the Economic Policy Institute. “Our research finds that more than one out of every four private-sector workers—including low-wage workers—are required to enter noncompete agreements as a condition of employment.  And the research on the economic impact of noncompetes is clear—they reduce wages, keep workers from finding better opportunities, and reduce the formation of new firms. This rule is an important step in creating an economy that is not only strong but that also works for working people.”
“Today, American workers reclaimed their power,” says Joe Van Wye, Senior Legislative Strategist, P Street. “Noncompete clauses in employment contracts do nothing but stifle innovation, restrict worker mobility, depress wages, lock workers into hazardous and unsafe conditions, and silence workers experiencing discrimination or harassment. We commend the Federal Trade Commission for advancing the Biden Administration’s pro-worker agenda and issuing clear victory for the hairdressers, security guards, fast food employees, and tens of millions of other workers who have been harmed by these abusive clauses.”
In January 2023, the FTC initiated its rulemaking process to ban these restrictive clauses. Since the FTC initially proposed the draft rule, over 25,000 Americans have submitted comments, while representatives from a wide array of industries—from hair stylists to physicians to real estate consultants—have testified in support of it. While the original rule proposed banning non-competes as to all workers within the FTC’s jurisdiction including senior executives, the Commission’s updated rule, which goes into effect in 120 days, prohibits all future noncompetes, and renders all existing non-competes unenforceable except for certain senior executives. The rule defines these senior executives as workers who have “policymaking authority” and are earning at least $151,164 in the preceding year or on a pro-rata basis. While the final rule does not invalidate existing non-competes as to these senior executives, it prohibits future non-competes for all senior executives, as it does for all workers covered under the rule.
Today’s rule will also restrict companies from requiring workers to enter contracts that serve the same function as non-competes, just under different terms. One prominent example of a “de facto” non-compete is known as Training Repayment Agreement Provision (TRAP), which requires departing workers to pay a fee for any on-the-job training they received regardless of necessity or quality. Recent research shows that employers have increasingly imposed TRAPs as a condition of employment over the last decade, particularly targeting young workers just beginning their careers. TRAPs can impose penalties of tens of thousands to hundreds of thousands of dollars, and the looming threat of financial ruin has been used to immobilize workers from leaving their jobs, or demanding better pay and working conditions. The final rule revises the definition of a non-compete agreement to include clauses that “prohibit,” “penalize,” or “function to prevent” post-employment work.
Non-compete agreements are restrictive one-sided arrangements foisted upon professionals at all levels, from corporate executives to franchise workers. Evidence suggests at least 18 percent of the workforce are subject to non-compete agreements upon signing a job offer. With such broad swaths of the workforce affected, it’s no surprise the FTC estimates that banning non-compete agreements nationally would increase workers’ earnings by nearly $400-$488 billion over the next decade, result in $74-$194 billion in reduced spending on physician services over the next decade, and lead to a 2.7% increase in the rate of new business formation.
Non-competes have been shown to not only restrict wages but also to stifle entrepreneurship, reducing new-firm entry by as much as 18 percent. In fact, workers in states and industries with more non-competes suffer from lower wages, less job mobility, and lower levels of job satisfaction—even when they themselves aren’t bound by such agreements. Banning non-competes is overwhelmingly popular across the country. An Ipsos poll found that three in five Americans (61 percent), including two-thirds of those who are currently employed (66 percent), supported the FTC’s proposed rule. A Small Business Majority poll conducted last April found that 59 percent of small businesses support the rule, with only 14 percent opposing it. 
Despite extensive evidence in support of the ban, the Chamber of Commerce indicated mere days after the initial announcement of the rulemaking in January 2023 that it would sue the FTC over the ban and challenge the agency’s constitutionality. The Chamber of Commerce has launched multiple other lawsuits challenging the Biden Administration’s use of rulemaking authority to protect workers and consumers against abuses of corporate power, including rules from the NLRB and CFPB. Despite the likelihood of another bad faith legal attack, the FTC has crystal clear legal authority to issue the rule. Congress created the FTC to police “unfair methods of competition … and unfair acts or practices in or affecting commerce” such as noncompete agreements, and explicitly gave it authority to “make rules and regulations for the purpose of carrying out the provisions of this subchapter [the FTC Act].” Over its 100 year history, the FTC has used this authority to issue over 20 rules.