FTC announces rule banning noncompetes for workers nationwide

FOX 11 Digital Team

In a significant move aimed at bolstering competition and empowering workers, the Federal Trade Commission (FTC) has finalized a rule to ban noncompete agreements across the United States. This landmark decision aims to enhance worker mobility, stimulate innovation, and foster the creation of thousands of new businesses annually.

FTC Chair Lina M. Khan emphasized the detrimental effects of noncompetes on wages, innovation, and economic dynamism. With the prohibition of these clauses, the FTC anticipates the emergence of over 8,500 new startups annually, facilitating job transitions and enabling individuals to pursue entrepreneurial ventures freely.

Under the new rule, existing noncompete agreements will be unenforceable for the majority of workers, benefiting approximately 30 million individuals who are currently bound by such restrictions. Notably, senior executives, representing less than 0.75% of the workforce, will retain existing noncompetes, but no new agreements can be entered into or enforced for this group.

The FTC estimates several positive outcomes resulting from the ban on noncompetes:

  • A projected 2.7% annual growth in new business formation, equating to over 8,500 additional businesses each year.

  • Higher average worker earnings, with an estimated increase of $524 per year for the average worker.

  • Potential healthcare cost savings of up to $194 billion over the next decade.

  • Increased innovation, translating to an estimated 17,000 to 29,000 additional patents annually over the next decade.

Noncompete agreements have long been criticized for limiting job mobility and stifling innovation. The FTC's final rule aims to rectify these issues by fostering a more dynamic and competitive labor market.

Throughout the rulemaking process, the FTC received significant public support, with over 25,000 comments in favor of the ban on noncompetes. The final rule reflects careful consideration of public feedback, with adjustments made to the initial proposal based on community input.

Employers are encouraged to explore alternative methods for protecting proprietary information and retaining employees, such as trade secret laws and non-disclosure agreements (NDAs). These alternatives offer effective safeguards without impeding worker mobility.

Key provisions of the final rule include:

  • The prohibition of new noncompete agreements for all workers except senior executives.

  • Model language provided to facilitate compliance, ensuring affected workers are informed of the nonenforcement of existing agreements.

The FTC's decision was approved by a 3-2 vote, with Commissioners Melissa Holyoak and Andrew N. Ferguson dissenting. The final rule will take effect 120 days after publication in the Federal Register.

Market participants are encouraged to report suspected violations of the rule to the Bureau of Competition at noncompete@ftc.gov once the rule is in effect.

The FTC's rule banning noncompetes marks a pivotal step towards enhancing economic competition and empowering workers to pursue new opportunities with greater freedom and flexibility.

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