The Federal Trade Commission proposed a new rule that would ban noncompete agreements in labor contracts. The organization estimates that the new rule could increase worker wages by nearly $300 billion per year and expand career choices for 30 million American workers.

Noncompete agreements are used by businesses to prevent workers from leaving for competitors or starting new businesses in the same industry for a set period of time. First used for high-paid executives to prevent them from sharing company secrets, the practice has now trickled down to low-wage workers.

Noncompetes directly affect 20-45% of private-sector U.S. workers, studies show. Several states have constricted the use of the contractual clause and some, like California, have already banned the practice.

The use of these agreements has long been criticized as they continue to reduce competition and hurt low-wage workers. One example is the restaurant chain Jimmy John's, which in 2014 faced criticism for adding a noncompete clause for sandwich makers and delivery drivers' contracts, preventing them from working for a competing sub shop for two years.

"Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC's proposed rule would promote greater dynamism, innovation, and healthy competition," FTC Chair Lina Khan said in a statement.

The FTC argues that the practice of noncompete agreements prevents entrepreneurial endeavors, industry competition, and harms consumers. The rule would apply to independent contractors, paid, and unpaid employees. It would also require employers to rescind any current non-compete contracts and inform workers of the new law.

"Research shows that employers' use of noncompetes to restrict workers' mobility significantly suppresses workers' wages—even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law," Director of the Office of Policy Planning Elizabeth Wilkins said. "The proposed rule would ensure that employers can't exploit their outsized bargaining power to limit workers' opportunities and stifle competition."

In a dissenting opinion, FTC Commissioner Christine Wilson said that the proposal lacked clear evidence and "represents a radical departure from hundreds of years of legal precedent." Wilson noted that, if put in place, the rule will be met with challenges in the court.

On Wednesday, the FTC cracked down on several companies that were using harmful noncompete agreements that violated Section 5 of the FTC Act. The organization had discussed reinvigorating the law last year to ensure workers are protected.

The new proposal will be open for the public to submit comments for 60 days, moving for a final vote afterward.

The proposal comes as the labor rights movement continues to gain traction. Employees of Amazon, Starbucks, HarperCollins and the New York Times, among others, have begun striking and collective bargaining for better wages and paid leave.

FTC