Noncompete agreements — which restrict a worker’s ability to switch employers within their industry — have been standard practice for decades. Roughly 1 in 5 U.S. workers operate under noncompetes, the FTC estimates, from hourly workers to CEOs. These measures are particularly common in industries such as technology, sales, finance and health care, as well as hairstyling, fitness and broadcast media.

“These contracts and noncompetes were developed in the first place to prevent employees from easily switching to rival firms, or to new positions,” Michelle Hay, global chief people officer at the business solutions company Sedgwick, told The Post, adding that “noncompetes have been governed on a state-by-state basis for more than 200 years.”

The language in these contracts can be used to prevent an employee from going to work for a competitor, or starting a competing business, “typically within a certain geographic area and period of time after the worker’s employment ends,” the FTC notes.

The FTC contends that noncompete clauses ultimately decrease competition by preventing workers from pursuing opportunities within the same industry and “lower wages for both workers who are subject to them as well as workers who are not.”

“Noncompete clauses also prevent new businesses from forming, stifling entrepreneurship, and prevent novel innovation which would otherwise occur when workers are able to broadly share their ideas,” the regulatory agency says on its website.

Doing away with noncompetes would increase business formation across the country by 2.7 percent, or 8,500 additional businesses each year, the FTC projects. The regulator also expects that the final rule will increase earnings for the average worker by $524 per year and lower health-care costs by as much as $194 billion over the next decade.

The origins of the ban trace to 2021, when President Biden ordered the agency to curtail the use of noncompete agreements as part of an executive order meant to promote competition in the U.S. economy.

The ban, which is the latest step in a major effort by the FTC to expand the boundaries of antitrust enforcement, is set to take effect in 120 days. But it could face disruption from legal challenges, which already are underway.

The ban would void existing noncompete agreements and broadly bar them in the future, allowing workers to “pursue better opportunities, shake up the market and push megacorporations towards fair practices,” said Liz Zelnick, director of the economic security and corporate power program at Accountable US, a nonpartisan government watchdog.

“Noncompete clauses force employees to endure low wages and poor working conditions,” Zelnick said in comments emailed to The Washington Post.

Although they are extremely common, such agreements are “very unpopular and very difficult to deal with” for workers, according to Peter Rahbar, a New York-based employment lawyer. He noted that the rule received overwhelming support from workers and labor advocates, with roughly 25,000 of the 26,000 public comments received by the FTC coming from those in support of a ban.

In the past decade, he noted, growing attention has been paid to the noncompetes being used on low-income workers, like at sandwich maker Jimmy John’s.

“They’re very scary for the individual no matter how highly compensated they are,” Rahbar said.

The rule change is already facing pushback, which could halt its implementation. On Wednesday, the U.S. Chamber of Commerce and other business groups sued the FTC in federal court in the Eastern District of Texas. They are asking the court to issue an injunction to prevent the rule from taking effect, arguing that the FTC’s decision “breaks with centuries of state and federal law and rests on novel claims of authority by the Commission,” according to the lawsuit.

Whether the FTC has the authority to make this rule “is going to be the central point of challenge,” according to Rahbar. That lawsuit and future challenges will probably hinge on whether the agency can legally force such a broad change on an issue Congress did not direct the regulator to take up, he said.

“Over the past few years, there have been significant challenges to administrative agencies and the scope of their powers to make rules and regulations in areas where Congress hasn’t instructed them to do so,” Rahbar said. “Traditionally, there’s been a lot of deference to agency rulemaking authority.”

Gregory Brown, a commercial litigation lawyer with Hill Ward Henderson, said the rule creates a landscape of uncertainty for employers and employees, given how broad the language is and how the FTC is exercising its power.

“There will be direct challenges to this rule, constitutional challenges and some challenges about the FTC’s authority,” Brown said. “I think chaos ensues from here.”