FTC Bans Noncompete Clauses That Restrict Job Switching

The Federal Trade Commission on Tuesday banned employers from using noncompete contracts to prevent most workers from joining rival firms, achieving a policy goal that is popular with labor but faces an imminent court challenge from business groups.

The measure, approved by the agency’s Democratic majority on a 3-to-2 vote, marks the first time in more than 50 years that FTC officials have issued a regulation to mandate an economywide change in how companies compete. The commission has historically operated like a law enforcement agency, investigating and suing individual companies over practices or deals deemed to violate the law.

The FTC’s final rule becomes effective in four months. The U.S. Chamber of Commerce plans to sue the FTC as soon as Wednesday over the rule. The suit would argue that the FTC lacks the legal authority to issue the rule and would ask a federal court to invalidate it, Chamber officials said this week.