The Federal Trade Commission (FTC) has issued a final rule banning noncompete agreements, which will be effective four months after its coming publication in the Federal Register.
The new rule, which passed by a 3-2 vote, not only outlaws new employment agreements that forbid people from working for competitors in the future, but effectively nullifies any current ones.
Currently, 30 million American workers—about one in five—are subject to some form of noncompete agreement, the FTC said. The new policy doesn’t require companies to formally rescind current clauses, though it’s provided them with model language they can use to tell their workers noncompetes won’t be enforced against them in the future.
There is one exception to the new ban: Existing noncompetes will remain in effect for senior executives (defined as those in policymaking positions who earn more than $151,164 annually). Employers, however, cannot enact noncompetes against top-level employees in the future.
Employers also are still permitted to implement nondisclosure agreements (NDAs) and enforce trade secret laws if they wish to protect proprietary and other sensitive information.
“Noncompetes often force workers 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,” the agency said in a statement.
Right after the FTC decision was announced, the U.S. Chamber of Commerce, in conjunction with other business groups, filed suit in Texas federal court to have the new rule overturned, arguing the FTC had overstepped its authority.
The agency first proposed banning noncompetes in January 2023. During the 90-day public comment period, it received more than 26,000 comments on the proposed rule, with over 25,000 in support of a ban.
Once the new policy takes effect, suspected violations can be reported to noncompete@ftc.gov.
(Photo: Getty Images)
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