In a sweeping new rule announced this week, the Federal Trade Commission has banned noncompete agreements, citing their detrimental effects on workers and the market.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said in a statement announcing the ban. “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 is set to become law 120 days after its official publication, and will enforce the nullification of any standing noncompete agreements. However, "under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions."

“This would be an immediate shock that would allow millions of workers to be free to take a better job in their industry,” Evan Starr, who teaches economics at the University of Maryland, told the New York Times. “I would expect the labor market to increase almost overnight.”

In a post on X, former Labor Secretary Robert Reich said that "it's estimated that the ban could increase wages by $300 billion a year and impact nearly 30 million Americans."

But the backlash was just as swift. The US Chamber of Commerce filed a lawsuit over the ban shortly after it was announced, claiming the FTC is overstepping its authority. As the Times adds, the lawsuit accuses the ban of "a vast overhaul of the national economy, and applies to a host of contracts that could not harm competition in any way."

The Chamber of Commerce added in their suit that "companies will face substantial legal costs as they are forced to resort to other tools to attempt to protect their investments. …And the economy as a whole will suffer as start-ups and small businesses are unable to prevent dominant firms from hiring their best employees and gaining access to their confidential information."

In response, Douglas Farrar, a spokesman for the FTC, stood by the agency's decision and said this new rule is squarely within their jurisdiction. "Addressing noncompetes that curtail Americans' economic freedom is at the very heart of our mandate, and we look forward to winning in court."

Overtime

Labor advocates won more than one battle this week. In addition to the FTC's ruling, the Department of Labor expanded the qualification threshold for overtime pay to include millions more workers.

"Effective July 1, 2024, the salary threshold [for overtime exemption] will increase to the equivalent of an annual salary of $43,888 and increase to $58,656 on Jan. 1, 2025," the Department's press release states. In it, Acting Secretary Julie Su noted that "too often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay. That is unacceptable."

THE VERDICT:‍

With any major shakeup in employment laws comes a period of recalibration. These two major rulings by the Biden Administration will not only see legal challenges in the months and years ahead, but will be tweaked to find their final shape.