FTC Bans Noncompete Agreements Nationwide

The Federal Trade Commission (FTC) has announced a final rule banning noncompete agreements nationwide, effective 120 days after publication in the Federal Register. The rule is expected to promote competition, protect worker mobility, foster innovation, and encourage new business formation.

Projections suggest that the rule will facilitate the formation of over 8,500 new businesses annually, enhance worker earnings by an average of $524 per year, lower healthcare expenditures by up to $194 billion over the next decade, and drive innovation with an estimated 17,000 to 29,000 additional patents per year in the coming decade.

Key provisions of the final rule include:

• Banning noncompete agreements for most workers, except for senior executives (representing less than 0.75% of workers), whose existing agreements can remain in force.
• Employers are prohibited from entering into or enforcing new noncompetes, even for senior executives.
• Employers must notify workers, except for senior executives, that existing noncompetes will not be enforced.
• The rule defines “noncompete clause” broadly to encompass any agreement or policy that limits a worker’s ability to seek new employment or start a business after leaving a job.

The FTC received over 26,000 public comments on the proposed rule, with overwhelming support (over 25,000 comments) for the ban on noncompetes. The final rule is based on extensive research. It aims to address concerns that noncompete agreements suppress wages, hinder innovation, and limit worker mobility, affecting approximately one in five American workers.

The FTC also emphasized effective strategies for employers to safeguard their investments without relying on noncompete agreements, such as implementing trade secret laws and improving wages and working conditions. These alternatives demonstrate proactive measures that can benefit employers and workers while fostering a fair and competitive labor market.