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FTC considers restrictions on noncompetes

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The Federal Trade Commission is considering new regulations to restrict companies’ use of noncompete clauses.

Last year, President Joe Biden asked the FTC to consider limiting these clauses. But the U.S. Chamber of Commerce contends that the FTC doesn’t have statutory authority to regulate noncompetes.

In a letter to the agency sent in 2021, the Chamber argued that “the FTC should combat potentially anticompetitive non-compete clauses through its traditional tools, such as competition advocacy and case-by-case litigation, rather than through a rule for two principal reasons: First, the FTC lacks legal authority to promulgate a rule that would ban non-compete clauses. Second, and in any event, such a rule would harm consumers by banning the many pro-competitive aspects of non-competes.”

Over the past year, the FTC has been split equally, with two Democrats and two Republicans. There is now a third Democrat, who took office in May.

FTC Chairwoman Lina Khan and others have stated concerns that noncompetes, especially when used for employees with lower wages, make it hard for those workers to grow their wages by moving on to other companies.

Others contend that noncompete clauses make it unfairly difficult for higher-wage executives to move on to start their own ventures or work with start-up companies.

The FTC has been acting on its plan to fight noncompetes on a case-by-case basis. The agency has issued subpoenas to businesses it believes have unfairly required workers to sign noncompete agreements.

It is unlikely that the Republicans on the FTC would vote in favor of a regulation that banned noncompetes. Republican FTC Commissioner Noah Phillips has reportedly stated that the agency doesn’t have the legal authority to issue rules on competition, but that it can question the use of noncompetes in specific cases. Last year, GOP Commissioner Christine Wilson said it was “premature” to institute a federal rule on the issue because many states have banned the use of the clauses.

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