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New FTC Rule Bans Noncompete Agreements

Man signing an employee non-compete agreement.

On April 23, 2024, the Federal Trade Commission (FTC) announced a new rule that would eliminate virtually all employee noncompete agreements nationwide. Nearly one in five American workers are currently subject to noncompetes, and this new rule will affect more than 30 million employees.

The federal regulation would empower millions of workers

According to the FTC's announcement, the new rule will protect workers' fundamental freedom to change jobs and drive increased innovation and new business formation. “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," said FTC chair Lina Khan.

We've been following the FTC's rulemaking closely since they first announced this proposed rule last year. When this new rule goes into effect, it will represent a significant step forward for employees' rights.

How the new FTC rule will work

Once the new rule goes into effect, employers will be totally banned from entering new noncompete agreements with all employees, and the vast majority of existing noncompetes will become legally unenforceable. In addition, employers will be required to notify employees that their existing noncompetes are no longer enforceable.

The new rule contains a limited carveout for existing noncompetes with senior executives, defined as workers who earn more than $151,164 and are in a “policy-making position.” However, while existing noncompetes with senior executives remain enforceable, employers can't enter new noncompete agreements with them.

According to the FTC, the impact of this new rule will be significant. The FTC estimates that the average worker's earnings will increase by $524 per year, which adds up to between $400 and $488 billion in increased wages over the next decade. The FTC also projects the new rule will lead to 8,500 new businesses and 17,000-29,000 new patents each year. And eliminating noncompetes for physicians and other healthcare workers will reduce healthcare costs by between $74 billion and $194 billion.

When the new FTC rule will take effect

Currently, the new rule is set to go into effect 120 days after it is published in the Federal Register. However, that timeline could be affected by potential litigation. The U.S. Chamber of Commerce has already announced its intent to challenge the new rule in court.

Alternatives to noncompetes are not affected by the new rule

While the new FTC rule will ban noncompetes, it will generally not touch other types of agreements, such as:

  • Nondisclosure agreements (NDA), which prevent employees from disclosing trade secrets and other proprietary information,
  • Nonsolicitation agreements, which prohibit employees from soliciting clients, customers, or other employees of their employer, and
  • Nonrecruitment agreements, which prohibit employees from trying to hire other employees away from their employer.

In addition, the FTC announcement notes that employers can compete for their employees' continued services by offering better wages and working conditions, rather than locking them in with noncompete agreements.

If you have an employment law issue, talk to our attorneys today

While the FTC's decision is an important step forward for workers, it's also a reminder of the persistent power imbalance between employer and employee. Our job is to level the playing field by empowering workers. If you believe your employer has violated your legal rights, the experienced employment law attorneys at Gibson Law, LLC are here to help. Give us a call or contact us online for a free case evaluation.

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