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Key Takeaways
- The FTC issued a rule that would ban non-compete agreements that prohibit employees from working for competitors.
- Nearly one-in-five Americans currently has a noncompete clause, and the ban could help employees earn more each year, the FTC says.
- The ban is the latest action by President Joe Biden’s administration that is aimed at increasing competition in the economy.
- The rule will go into effect four months after it’s published in the Federal Register barring any legal challenges that would delay its implementation.
If you have an employment contract restricting who you can work for after leaving your current company, it may no longer be worth the paper it’s printed on under a new federal rule.
The Federal Trade Commission issued a rule Tuesday banning contracts that prohibit employees from leaving a job to work for a competitor. Such “ non-compete ” agreements, which are already restricted in California and several other states to some degree, currently affect some 30 million workers, the FTC said.
The FTC proposed the non-compete ban in January 2023 that stemmed from an executive order by President Joe Biden issued in 2021. It is part of a far-reaching effort across federal agencies to promote competition throughout the economy.
FTC Expects Ban To Lead To Higher Wages
The FTC estimates that banning non-competes will push businesses to raise wages, netting workers an average of $524 more a year. The agency also predicted the rule will encourage people to start new companies.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina Khan said in a 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.”
US Chamber of Commerce to Sue to Stop Ban
Employers use non-compete clauses to restrict what kind of work employees can do and where, often to prevent them from taking knowledge or skills to a competitor. The FTC called them “exploitative” and said they force workers to switch to lower-paying fields, relocate, leave the workforce, or face expensive litigation.
The U.S. Chamber of Commerce, a trade group representing business interests, said it planned to sue to stop the ban. In the past, the group has defended the practice, saying non-compete clauses help companies keep trade secrets and encourages them to offer training without fear that their new employee will leave and take their skills to another business.
The rule is set to go into effect four months after it’s published in the Federal Register. The FTC is requiring companies to send notice to workers that their non-compete agreements are no longer in effect.
The rule won’t affect existing non-competes for high-level executives, who make up three-quarters of one percent of the workforce, the FTC said.