Federal Trade Commission Votes to Adopt Nearly Total Ban on Noncompete Clauses

Back on January 5, 2023, the Federal Trade Commission (FTC) proposed a new rule to ban noncompete clauses according to the FTC’s press release at the time, and on April 23, 2024, voted to adopt the rule that “comes three years after President Joseph Biden signed an executive order encouraging the FTC to limit noncompete agreements, which affects roughly one in five Americans.” Simply defined, the non-compete clause, which is between two parties, is an agreement whereby “one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer).” Dating as far back as 1414, “traditionally, non-competes were used to prevent high-skilled workers from transferring trade secrets or a customer list from one firm to a competing firm.” The FTC estimates the final rule “will generate over 8,500 new businesses each year, raise wages for the average worker by an additional $524 per year, lower health care costs by up to $194 billion over the next decade, and boost innovation. While existing noncompetes for senior executives “earning more than $151,164 annually and who are in policy-making positions” can remain in force under the new rule, which represents less than 0.75% of workers, employers “are prohibited from entering into or enforcing new noncompetes with senior executives.” Noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date which will be 120 days after publication in the Federal Register. Subject to a 90-day public comment period, the FTC noted that 26,000 comments on the proposed rule had been received, with over 25,000 comments in support of the FTC’s proposed ban on noncompetes.

Source:    https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes