New FTC Rule Bans Noncompete Agreements

Agency says clauses 'keep wages low' and 'suppress new ideas'
By Rob Quinn,  Newser Staff
Posted Apr 23, 2024 6:09 PM CDT
New FTC Rule Bans Noncompete Agreements
The Federal Trade Commission building in Washington.   (AP Photo/Alex Brandon, File)

The Federal Trade Commission has voted 3-2 to ban noncompete agreements for most workers, meaning millions more people will soon be free to leave their jobs to work for competitors or start their own businesses. The FTC says around a fifth of the US workforce, about 30 million people, is currently bound by noncompete agreements, NPR reports. Under the new rule, set to take effect in four months, they will be released from the agreements. The rule makes an exception for senior executives with existing noncompetes, but companies won't be allowed to set up or enforce new noncompetes.

  • "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," FTC Chair Lina M. Khan said in a statement. "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

  • The FTC estimates that allowing people to change jobs more freely will lead to increased wages adding up to almost $300 billion. It also predicts an increase of between 17,000 and 29,000 new patents per year.
  • The Wall Street Journal reports that according to Cornell University professor Matt Marx, sales workers, engineers. doctors, and salon staff are among those most affected by noncompete clauses. The Journal notes that the agreements have become more prevalent in recent years, affecting many low-paid workers with little access to trade secrets, though three states, including California, already ban them.
  • The US Chamber of Commerce accused the FTC of overstepping its authorities and said it would sue to block the new rule, the AP reports. "This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy," Suzanne Clark, the chamber's president and CEO, said in a statement.
(More Federal Trade Commission stories.)

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