FTC Prohibits Noncompete Agreements for Majority of Workers. What Comes Next?

In a groundbreaking move, the Federal Trade Commission (FTC) has voted to ban employer non-compete agreements, a decision that will impact millions of American workers. The 3-2 vote marks a significant shift in labor practices, with approximately 30 million workers currently bound by noncompete agreements.

FTC Chair Lina M. Khan emphasized the detrimental effects of noncompete clauses, stating that they keep wages low, stifle innovation, and hinder economic growth. The new ruling will give Americans the freedom to pursue new job opportunities, start businesses, and bring fresh ideas to the market.

Effective 120 days after publication in the Federal Register, the ban will render noncompete agreements unenforceable for most U.S. workers. However, senior executives earning over $151,164 annually will still be subject to existing agreements, though new non-competes cannot be enforced.

The FTC estimates that by banning noncompetes nationwide, new business formation will increase, workers’ earnings will rise, and healthcare costs will decrease significantly over the next decade. The agency views noncompetes as exploitative practices that limit workers’ mobility and opportunities for advancement.

Employees who believe they have been subjected to a violation of the new law can report their current or former employer to the FTC. This ruling marks a significant victory for workers’ rights and is expected to have far-reaching implications for the labor market.