The Federal Trade Commission is proposing a ban on non-competition provisions, saying the move would bolster the position of workers.

On Thursday, the Federal Trade Commission proposed a new rule banning the use of non-compete clauses in employee contracts, which would significantly boost employees’ bargaining power.

The proposal builds on the FTC’s finding that non-competition provisions violate its fair trade laws, with the agency calling them “widespread and often exploitative practices that suppress wages, discourage innovation, and prevent entrepreneurs from starting new businesses.”

The FTC estimates that the new rule could increase wages by about $300 billion a year.

“Freedom to change jobs is the foundation of economic freedom and a competitive, prosperous economy,” FTC Chair Lina M. Khan said in a statement. “Non-competition prevents workers from freely changing jobs, depriving them of higher wages and better working conditions, and depriving enterprises of the talent pool they need to create and expand. By ending this practice, the FTC’s proposed rule will promote greater dynamism, innovation and healthy competition.”

Non-compete clauses—legal provisions that prevent employees from going to work or starting a competing business for a certain period of time after leaving work—are used in a wide variety of industries and positions. Their use has increased in recent years, and many economists believe they are an important factor in wage stagnation. According to a 2019 study by the leftist Economic Policy Institute, between a quarter and about half of all workers fall under non-compete provisions.

“Given the ubiquity of competition prohibitions, the real damage they cause to workers and competition, and the fact that they are part of a growing trend of employers requiring their workers to give up their rights as a condition of employment, competition prohibitions can and should be prohibited. either through legislation or through regulation,” the institute’s study says.

The FTC said that 1 in 5 workers are bound by non-compete clauses.

The agency voted in favor of the rule 3–1, while Kristin Wilson, appointed by then President Donald Trump, voted against. Wilson said she believes the rule is outside the scope of the FTC and may be vulnerable to legal issues.

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