The United States (US) Chamber of Commerce has announced plans to sue the Federal Trade Commission (FTC) over its decision to ban noncompete agreements for most workers across the United States.
This ruling by FTC, which reached a 3-2 vote Tuesday, is a move aimed at promoting job mobility and fostering competition, potentially impacting millions of workers and reshaping employment practices nationwide.
Noncompetes Ban's Impact on Workers, Business
The FTC's final rule seeks to dismantle the prevalent practice of noncompete clauses that restrict workers from changing jobs or starting new businesses.
FTC Chair Lina M. Khan emphasized the detrimental effects of such agreements.
"Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism," Khan said. "The FTC's final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market."
The rule, once effective, is anticipated to have significant economic ramifications. It is projected to boost new business formation by 2.7% annually, resulting in over 8,500 additional startups each year, as per FTC.
Furthermore, workers are expected to see a rise in earnings, with an estimated increase of $524 per year for the average worker. Health care costs could also decrease by up to $194 billion over the next decade.
FTC's Ban on Noncompetes Faces Opposition
Despite the potential benefits, the FTC's decision faces opposition from business groups and legal challenges.
The US Chamber of Commerce has vowed to challenge the rule in court, arguing that it oversteps regulatory boundaries and undermines businesses' ability to protect proprietary information.
"The Federal Trade Commission's decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses' ability to remain competitive," the US Chamber of Commerce President and CEO Suzanne P. Clark said in a statement issued Tuesday.
Critics of the ban argue that noncompetes are crucial for safeguarding intellectual property and fostering innovation within companies.
They also raise concerns about potential disruptions in business practices and legal uncertainty resulting from the ban.
Meanwhile, the Commission removed a part from the initial rule that would have made employers formally cancel existing noncompete agreements.
This modification aims to simplify how employers comply with the rule.
Now, under the final rule, employers only need to inform workers with existing noncompetes that these agreements will not be enforced moving forward, according to a press release from FTC.
Once the rule officially takes effect, individuals can report any suspected breaches of the rule to the Bureau of Competition by sending an email to noncompete@ftc.gov.
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