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US FTC bans noncompete agreements

Posted April. 25, 2024 08:06,   

Updated April. 25, 2024 08:06


The U.S. Federal Trade Commission (FTC) enacted a new rule related to noncompete agreements that bans workers from changing jobs in the same industry. In 180 days, which will fall on October 30, a million workers subject to this regulation will be able to change jobs freely. Any existing contracts will also become invalid. Companies are expected to file suit on grounds of protecting trade secrets and intellectual property rights.

“We will ensure that Americans have the freedom to start new jobs and businesses. Deprivation of economic freedom means taking away other freedoms as well,” said FTC Chairman Lina Khan. Non-compete agreements were generally introduced to prevent the leakage of proprietary technology and trade secrets by high-income professionals in the financial industry and software engineers.

Violation of the agreement results in financial compensation for astronomical figures, who are criticized for infringing on workers' freedom to change jobs and limiting rights to start businesses and increase wages. The agreement was also criticized for being applicable to low-wage workers, such as restaurant employees, fast food employees, hairdressers, and bartenders. The U.S. Treasury estimates that 30 million workers, or about 20 percent of all workers, are tied down by non-compete agreements. The FTC expected that banning non-compete contracts would create 30 million jobs and increase workers' total annual wages by 300 billion. Dollars Business groups, including the U.S. Chamber of Commerce, announced that they would file lawsuits claiming that the FTC lacks the legal authority to prohibit non-compete agreements. They emphasized that non-compete agreements are essential to protect proprietary technology and trade secrets, inducing investment in the education and training of workers.

Some view that the FTC’s decision was influenced by President Joe Biden, who is trying out for a second term in the upcoming November presidential election. In his State of the Union address in February last year, President Biden vowed to ban non-compete contracts to protect workers’ rights. “Every worker has the right to choose whom to work for,” he wrote on his X account on Tuesday.

김보라 기자 purple@donga.com