Non-compete agreements are set to be banned by the US Federal Trade Commission as the regulator looks to limit wage suppression and foster innovation.
Commissioners at the regulator voted 3-2 in favour of the measure, which was first brought to the table in January 2023.
Non-compete agreements or clauses are inserted in employee contracts to prevent workers from leaving and setting up a direct competitor to their former company.
Typically the rule is inserted to protect businesses’ confidential information and customer bases.
However, experts believe non-competes are now filtering into all ranges of industries – partly a result of workers shifting away from unions.
“Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new start-ups that would be created a year once non-competes are banned,” said FTC chair Lisa Khan.
Following the decision, industry groups immediately pushed back and said they would begin suing the regulator amid fears the changes will cause costs to rise and put trade secrets at risk.
The US Chamber of Commerce, the business advocacy group, claimed the FTC lacked constitutional and statutory authority and that the move was “a blatant power grab”.
“[It] sets a dangerous precedent for government micromanagement of business,” the group said.