The Federal Trade Commission (FTC) has issued a rule prohibiting employers from using noncompete contracts to restrict most workers from joining rival firms, a move popular with labor but facing legal challenges from business groups.

This marks the first time in over 50 years that the FTC has mandated an economy-wide change.

The rule bars companies from enforcing existing noncompete agreements on anyone other than senior executives and prohibits new contracts for such executives.

FTC Chair Lina Khan emphasized the restoration of economic rights to workers and the detrimental impact of noncompete clauses on competition and worker pay, the Wall Street Journal has reported.

The Biden administration has supported stricter enforcement of antitrust laws, with noncompete clauses being deemed as violating laws against unfair competition.

The rule, affecting nearly one in five American workers, becomes effective in four months but faces imminent legal challenges from groups like the U.S. Chamber of Commerce.

While states traditionally regulate noncompetes, the FTC’s action signals a federal intervention, prompting concerns about overreach and legal authority.

Written by B.C. Begley