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Employers Would not be Allowed to use “Non-compete” Agreements under a new US Rule

The FTC has voted to prohibit non-compete agreements, which prevent workers from joining or establishing competing companies for a specified duration. This decision, however, is expected to face legal challenges. The Biden administration has targeted non-compete agreements, historically associated with high-ranking executives in technology and finance but increasingly affecting lower-paid workers. A study by the Federal Reserve Bank of Minneapolis revealed that over 10% of workers earning $20 or less per hour are bound by such agreements. The FTC argues that these agreements limit job mobility and wage growth, impacting both workers and the broader economy. Business groups criticize the ban, claiming it is overly broad and questioning the FTC’s authority to implement it. Legal action by groups like the US Chamber of Commerce could delay the rule’s enforcement.

The government has scrutinized non-compete agreements, typically linked with top executives in tech and finance, but highly affecting basic wage employees like security guards, housekeeping and sandwich-shop employees.  When proposing the ban in January 2023, FTC officials argued that non-compete agreements hinder workers by limiting their capacity to change jobs for better pay, a move that often results in significant wage increases.

Business associations have blasted the law for preventing almost all noncompetes, thereby sweeping too wide a net. Furthermore, they contend that the FTC is not authorized to pursue such action. The US Chamber of Commerce has declared that it will file a lawsuit to overturn the decision, which may delay the rule’s implementation for several months or possibly years.

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