FTC Implements Regulation Prohibiting Noncompete Agreements

The Federal Trade Commission (FTC) has made a groundbreaking decision to ban noncompete clauses nationwide, with the aim of promoting competition, protecting workers’ freedom, and fostering innovation. This move is expected to have far-reaching effects on the economy, generating over 8,500 new businesses each year, raising worker wages, lowering healthcare costs, and driving innovation.

Noncompete clauses have long been criticized for their negative impact on wages, innovation, and job mobility. The FTC’s final rule will ban noncompetes for the majority of workers, with only senior executives being exempt, and even then with strict limitations.

The FTC estimates that this rule will lead to a 2.7% annual increase in new business formation, resulting in thousands of additional startups each year. Workers can expect higher earnings, with an estimated increase of $524 per year, and healthcare costs are projected to decrease by up to $194 billion over the next decade. Additionally, the rule is expected to spur innovation, leading to thousands of new patents each year.

This decision comes after a 90-day public comment period, during which the FTC received overwhelming support for the ban on noncompetes. Employers will be required to notify workers bound by existing noncompetes that they will not be enforcing the agreements, with model language provided by the FTC to aid in compliance.

Overall, this landmark decision marks a significant shift in the way employers approach worker contracts, prioritizing fairness, innovation, and competition. The final rule will take effect 120 days after publication in the Federal Register, with market participants able to report violations to the Bureau of Competition.