On Tuesday, the Federal Trade Commission (FTC) voted 3-2 to ban employers' non-compete agreements — a contract that employers require certain workers to sign stating that they cannot work for a competing business for a specified time after their employment with the company has ended.
According to the agency, about one in five workers – or 30 million people – are currently under a competition.
“Non-compete clauses keep wages down, stifle new ideas and rob the US economy of its dynamism, including from the more than 8,500 new startups that would be created a year after non-competes are banned,” said the FTC chair. Lina M. Khan in a. company release. “The FTC's final rule to ban noncompetes will ensure that Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Connected: FTC Proposes Ban on Non-Compete Agreements
If you are currently subject to a non-compete, it will no longer be binding on most US employees beginning on the rule's effective date, which is 120 days after publication in the Federal Register.
EXCEPThowever, it is senior executives who are locked into existing non-competes, although employers are not permitted to enforce or enter any senior executives into new non-compete agreements.
Senior executives are defined as “employees who earn more than $151,164 annually and who are in policy-making positions,” according to the new FTC ruling.
Employers will now also have to warn any existing employees with non-competes who are not senior executives that they are no longer locked into their agreements.
The Commission first outlined a proposal to ban contractual agreements in January 2023, defining at the time a non-compete as a contract that “has the effect of prohibiting the employee from seeking or accepting employment with a person or operating a business after the termination of the employee's contract.” .employment with the employer”.
Prohibiting non-competes nationwide, the agency estimates that new business formation will increase by 2.7% per year, median annual worker income will increase by $524, and health care costs will drop by $194 billion over the next 10 years.
“Noncompetes are a widespread and often exploitative practice that imposes contractual terms that prevent workers from taking a new job or starting a new business,” the FTC said in a statement. “Non-competes often force workers to either stay in a job they want to leave or to incur other significant damages and costs, such as being forced to move to a lower-paying field, being forced to relocate, being forced out of the workforce altogether, or being forced to defend against expensive litigation”.
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Once the rule goes into effect, employees who believe they have been subject to a violation of the enforceable law can report their current or former employer by emailing noncompete@ftc.gov.