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April 24, 2024

As CT debates restrictions on noncompete agreements, FTC votes to ban them

Contributed Gov. Ned Lamont answers questions from Chris DiPentima, CEO of the Connecticut Business & Industry Association, at an association-sponsored event .

Connecticut lawmakers for years have tried to place tighter restrictions on, or even ban employer noncompete agreements.

Last year, the Democrat-led General Assembly made some headway by passing a law that restricts the use of noncompete agreements involving physician assistants and advanced practice registered nurses.

This year, the Labor and Public Employees Committee passed a separate bill (House Bill 5269) that sets additional limits on noncompete agreements used by all employers. That bill still needs approval by the House and Senate. 

But now, the federal government has stepped in with an even more heavy-handed approach. 

The Federal Trade Commission on Tuesday voted 3-2 to ban most U.S. employers from forcing workers to sign noncompete agreements, arguing the move will increase innovation and foster new business formation. 

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

Under the FTC’s decision, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date, according to the commission. Existing noncompetes for senior executives can remain in force, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives, the FTC said. 
Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them, the FTC said.

The federal agency estimates 30 million workers — nearly one in five Americans — are subject to a noncompete.
According to the FTC, banning noncompetes will lead to a 2.7% annual increase in new business formation, resulting in more than 8,500 additional new businesses created each year. The ban is also expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years, the FTC said.

However, it’s not clear if the ban will have staying power. The U.S. Chamber of Commerce said it will sue the FTC over the ban, which it called “unlawful” and “a blatant power grab that will undermine American businesses’ ability to remain competitive.”

“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” said Chamber President and CEO Suzanne P. Clark.

Chris DiPentima, president and CEO of the Connecticut Business & Industry Association, shared similar sentiments about the FTC’s decision. 

“Noncompete agreements provide important protections for employers, and there are well-established rules for their use to ensure that employees are protected as well,” DiPentima said Wednesday. “This decision sets a dangerous precedent that can lead to harm to employers, workers, and our economy.”

On the state level, the CBIA has also opposed new proposed restrictions on noncompete agreements, including House Bill 5269, which bans new noncompete agreements for employees who are paid below three times the minimum wage, and independent contractors who are paid below five times the minimum wage.
The bill also bans noncompetes when a worker leaves for “good cause,” and does not allow such agreements to last longer than one year.

Gov. Ned Lamont’s office expressed support for the bill, arguing that placing limits on noncompetes “will make a real difference for workers who are bound by them, especially low-wage workers who are disproportionately women and people of color.”

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