The Federal Trade Commission (FTC), has issued a final rule to ban non-compete agreements nationwide, aiming to promote competition protect workers' freedom to change jobs, and innovation, and foster new business formation, therefore protecting consumer welfare.
Previously, the FTC published a proposed rule regarding non-compete agreements in January 2023, followed by a 90-day public comment period. On the over 26,000 comments FTC has received, it was detected that the vast majority supported the banning of non-compete agreements. After these influencing comments, on the 23rd of April 2024, the FTC published its final order banning non-compete agreements for good.
In the final rule, the Commission deemed it unfair and a violation of Section 5 of the FTC Act for employers to establish or enforce certain non-compete agreements on their employees. FTC found that these agreements;
The FTC also discovered that employers have effective alternatives to non-compete agreements for protecting their investments, such as non-disclosure agreements (NDAs) to protect sensitive information, and over 95% of workers are already covered by NDAs.
The final rule bans all non-compete agreements from being done, for all workers, including senior executives after the effective date. For existing agreements, on the other hand, the FTC adopts a different approach for senior executives than for other workers. Accordingly, the FTC determined that existing non-competes can remain in force for senior executives (defined as workers who earn more than $151,164 annually and who are in a “policy-making position.”) since they represent less than 0.75% of the market. Employers will also be required to provide notice to workers other than senior executives who are bound by an existing agreement that they will not be enforcing any agreements in the future. The FTC estimates that this ban will result in, reduced healthcare costs, new business formations, a rise in innovation, and higher worker earnings.
(FTC decision, 23.04.2023)
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