FTC Announces New Rule Banning Noncompetes

In a bid to increase competition, improve wages for American workers, and protect the freedom of workers to change jobs, the Federal Trade Commission (FTC) issued a final rule that bans noncompete agreements nationwide. The FTC Chair Line M. Khan noted that, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism. The FTC’s final rule to ban noncompete agreements will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The FTC estimates that the final rule banning noncompete agreements will lead to new business formation growing by 2.7% each year. This, they say, will result in the creation of more than 8,500 additional new businesses created each year. The final rule is also expected to increase wages for workers. The average worker could see an increase of about $524 per year. It is also expected to lower healthcare costs by up to $194 billion over the next decade. The FTC also believes the final rule will help drive innovation leading to an average increase of between 17,000 and 29,000 new patents each year for the next 10 years.

Understanding noncompete clauses 

Noncompete agreements are considered an exploitative practice imposing contractual obligations that prevent a worker from starting a new job or a new business. Noncompete agreements force workers to either stay in a job they’d rather leave or suffer other harms and costs, such as being forced to switch to a lower-paying position, being forced to relocate, being forced to defend against expensive lawsuits, or being forced to leave the workforce altogether. Today, it is estimated that 30 million American workers (one in every five Americans) are subject to a noncompete clause in their employment contract.

 Under the FTC’s final rule, existing noncompete agreements for the vast majority of workers will no longer be enforceable after the rule goes into effect. Existing noncompete agreements for senior executives will remain in force after the rule’s effective date. However, employers are hereafter banned from requiring employees—even senior executives—to enter into new noncompete agreements.  The noncompete agreements will no longer be enforceable under the final rule. Employers are further required to inform employees who are bound by noncompete agreements that they can no longer enforce the noncompete agreements against them.

 Understanding the ban on noncompete agreements 

In January 2023, the FTC proposed the rule that would become the final ban on noncompete clauses. The rule was subject to a 90-day public comment period. The FTC received more than 26,000 comments on the proposed rule. Over 25,000 of those comments supported the FTC’s move to ban noncompete clauses.

According to the final rule, the Commission determined that noncompete clauses are an unfair method of competition and subsequently, a violation of Section 5 of the FTC Act. The Commission found that noncompete agreements tend to negatively impact competitive conditions in labor markets by inhibiting a worker’s ability to match with an employer. They also found noncompete agreements inhibit new business formation which results in market concentration and higher prices for consumers as well as lower wages for workers.

 Talk to a Tampa, FL Employment Law Attorney Today 

Florin Gray Bouzas Owens, LLC represents the interests of employees litigating cases against their employers. Call our Tampa employment lawyers today to schedule an appointment, and we can begin discussing your case right away.

Source:

ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes