US moves to ban non-compete provisions in labor contracts

The U.S. Federal Trade Commission, which enforces antitrust law, proposed a rule that would ban companies from requiring workers to sign noncompete provisions as well as some training repayment agreements, which companies use to keep workers from leaving for better jobs, the agency said on Thursday.

The proposal seeks comment on a potential rule, which is months away, if not longer, from taking effect.

Noncompete agreements “block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” said FTC Chair Lina Khan in a statement.

The proposed rule is the latest sign from the Biden administration of its support for labor, including backing a measure to make it harder for an employer to classify a person as an “independent contractor,” which generally means fewer benefits and legal protections.

The agency estimated that if the rule goes into effect, wages to U.S. workers will rise by $300 billion per year, and an estimated 30 million Americans would have better career opportunities.

The rule would also require companies with existing noncompete agreements with workers to scrap them and to inform current and past employees that they have been canceled.

It would also stop companies from requiring workers to reimburse companies for certain kinds of training if they leave before a certain period of time, a strategy that some companies began to employ when noncompete provisions began facing scrutiny. The training repayment would be banned if it “is not reasonably related to the costs the employer incurred for training the worker.”

FTC Commissioner Rebecca Slaughter said in 2020 that surveys have estimated that 16% to 18% of all U.S. workers are subject to noncompete provisions. Meanwhile, nearly 10% of American workers surveyed in 2020 were covered by a training repayment agreement, said the Cornell Survey Research Institute.

The move comes a day after the agency announced that two big glass container makers and a security company agreed to drop noncompete requirements.