In dramatic ruling, FTC votes to void noncompete clauses — but will it stand?

Decision, which would dramatically impact hiring and retention, expected to be appealed

In a decision that could dramatically impact hiring — and retention — the Federal Trade Commission voted Tuesday 3-2 to ban noncompete clauses that prevent many employees from easily taking jobs with competitors.

The ban would not forbid noncompete clauses for those who make more than $150,000 and are in key roles.

The ruling by the federal agency is expected to be challenged in court — the U.S. Chamber of Commerce already has vowed to do so, saying, among other things, that noncompete agreements help secure intellectual property.

There also is a belief that the FTC does not have the authority to make such a ruling.

Opponents of the clause said it prevents people from being able to better market their skills, holds down wages and hinders entrepreneurial efforts.

It is believed that approximately 1 in 5 employees in the country (roughly 30 million people) works under a noncompete agreement.

These agreements are more extensive and pervasive than many realize. They are not just for high-level employees. Increasingly, they have been used to prevent hourly workers from changing jobs.

A 2021 study by the Federal Reserve Bank of Minneapolis found that more than 1 in 10 workers who earn $20 or less an hour are covered by noncompete agreements.

Job changes — at all levels — are a time when workers often get their biggest pay increases.

In January 2023, when the proposal was put out for public comment, ROI-NJ discussed it with Dan Barnes of Chiesa Shahinian & Giantomasi and John Losinger, at Saiber LLC. That story can be found here.