FTC Bans Non-Compete Agreements for Most U.S. Workers

The FTC voted 3-2 to ban non-compete agreements in all new employment contracts, except for senior executives and specific industries. The ban, which will impact 30 million workers, is being challenged in court by the U.S. Chamber of Commerce and faces potential legal delays.

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Sakchi Khandelwal
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FTC Bans Non-Compete Agreements for Most U.S. Workers

FTC Bans Non-Compete Agreements for Most U.S. Workers

The Federal Trade Commission (FTC) voted 3-2 on April 23, 2024 to ban, non, compete agreements in all new employment contracts, with exceptions for senior executives and specific industries. The new rule, which applies to every industry and worker in the country, could have significant effects on trade secrets and intellectual property (IP) rights. Approximately 30 million workers in the US who are currently bound to non-compete agreements will be impacted by the ban.

Why this matters: This ban has far-reaching implications for the US labor market, as it could lead to increased job mobility and higher wages for workers. The potential increase in patents and innovation could also have a significant impact on the country's economic competitiveness.

The FTC claims that the ban will result in an average of 17,000 – 29,000 more patents each year and $400 - $488 billion in increased wages for workers over the coming decade. However, the U.S. Chamber of Commerce is challenging the ruling in court, with President and CEO Suzanne Clark calling it "a blatant power grab that will undermine American businesses' ability to remain competitive" and saying it "sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy."

FTC Commissioner Andrew Ferguson (R) also opposed the rule, believing the agency "lacked authority" to pass it and that it is therefore "unlawful." The FTC has historically protected consumers and gone after individual corporations when they violate antitrust and competition law. However, FTC Chair Lina Khan has been accused of overreaching her statutory authority and attempting to regulate every aspect of the economy.

The Supreme Court has ruled that federal agencies are required to point to clear authorization from Congress when implementing regulations on an issue of battle, ban, heats "vast economic and political significance." This raises questions about whether the FTC's non-compete ban will withstand legal scrutiny. While the rule broadly defines prohibited non-competes, it does provide some exceptions and clarifications.

ban, immediately Non-compete clauses entered into as part of the sale of a business entity are not prohibited. Non-solicitation agreements and non-disclosure agreements (NDAs) are not categorically prohibited but could run afoul of the rule if they function to prevent a worker from seeking other employment. Garden leave agreements, where a worker is still employed and receiving compensation, are also not considered post-employment restrictions. However, agreements that require a worker to forfeit compensation or benefits for competing are prohibited.

The healthcare industry has expressed concerns about the impact of the non-compete ban. The Federation of American Hospitals warned that the ban will make it more difficult to recruit and retain caregivers while creating an unlevel playing field between taxpaying and tax-exempt hospitals. However, many physicians are optimistic that eliminating non-competes could improve access to care in underserved areas.

The rule will take effect 120 days after publication in the Federal Register. However, legal challenges are expected to delay implementation. Former FTC general counsel Alden Abbott noted, "Some time will pass before we see legal resolution of the noncompete issue... It's also possible that, if administrations change, future FTC leadership withdraws the rule." The potential, non, compete, ban is likely to continue in the courts and potentially in Congress in the coming months and years.

Key Takeaways

  • FTC bans non-compete agreements in new employment contracts, with some exceptions.
  • 30 million US workers currently bound by non-competes will be impacted.
  • FTC claims ban will lead to 17,000-29,000 more patents and $400-488 billion in increased wages.
  • U.S. Chamber of Commerce and FTC Commissioner Andrew Ferguson oppose the ruling.
  • Legal challenges expected to delay implementation, potentially changing the rule.