| Florida Courtroom. Credit: U.S. General Services Administration |
WASHINGTON, D.C. – The Federal Trade Commission issued a final rule banning noncompete agreements nationwide.
In the final rule, the Commission determined that it is an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to enter into noncompetes with workers and to enforce certain noncompetes.
The FTC says that it estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year.
In January 2023, the FTC issued a proposed rule which was subject to a 90-day public comment period.
The FTC received more than 26,000 comments on the proposed rule, with over 25,000 comments in support of the FTC’s proposed ban on noncompetes.
The FTC ban takes effect 120 days after the final rule is published in the Federal Register.
The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade.
Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives.
The final rule defines senior executives as workers earning more than $151,164 annually, and who are in policy-making positions.
The Commission found that employers have several alternatives to noncompetes that still enable firms to protect their investments without having to enforce a noncompete.
Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information, with researchers estimating that over 95% of workers with a noncompete already have an NDA.
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