The Federal Trade Commission Bans Non-Compete Agreements

Published: April 24, 2024
Image of businesswoman breaking metal chains representing her non-compete agreement

The Federal Trade Commission has issued a final rule in April 2024 which bans non-competition agreements in most employment situations (and voids nearly all existing non-competes).

An estimated 30 million American workers—nearly one in five—are subject to a noncompetition agreement. Noncompetition agreements (or “non-competes”) impose contractual conditions that prevent workers from taking a new job in the same field or starting a competing new business. Noncompetes frequently leave workers who want to leave an employer no choice but to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.

“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,” said FTC Chair Lina M. Khan. “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.”

Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives – who represent less than 0.75% of workers – can remain in force under the FTC’s final rule (in limited situations), but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

This rule will free workers to change jobs, increase innovation, and aid in the formation of new businesses.

If you want to know how this new rule effects you, please schedule a consultation with the employment lawyers at Newton Barth.

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