FTC Announces Rule Banning Noncompetes

WASHINGTON - On April 23, the Federal Trade Commission voted 3-to-2 to approve a new rule banning noncompetes for all workers when the regulations take effect in 120 days. For senior executives, existing noncompetes can remain in force; for all other employees, existing noncompetes are not enforceable.

In a press release, FTC said it estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade. In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.

Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.

FTC Chair Lina M. Khan said in the press release, “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
According to FTC, an estimated 30 million workers — nearly one in five Americans — are subject to a noncompete.

As reported by CBS News, employers who use noncompetes argue that they are needed to protect trade secrets or other confidential information employees might learn in the course of their jobs. But corporations concerned about protecting their intellectual assets can use restraints such as confidentiality agreements and trade secret laws, and don't need to resort to noncompete agreements, the FTC staff determined.

The final rule will become effective 120 days after publication in the Federal Register.

Sources:
Federal Trade Commission
CBS News