FTC Releases Rule Nullifying Non-Compete Clauses for Most Workers
This week, the Federal Trade Commission (FTC) finalized a rule that bans non-compete clauses nationwide, heralding significant changes across various industries. The new rule, aiming to boost competition and worker mobility, is expected to facilitate over 8,500 new businesses annually, raise worker wages, reduce healthcare costs by up to $194 billion over the next decade, and spur innovation with an estimated increase of up to 29,000 patents yearly.
Non-compete agreements, which currently impact 1 in 5 U.S. workers (nearly 30 million total), restrict employees from joining competitors or starting similar businesses. These agreements have been criticized for suppressing wages, stifling innovation, and imposing undue hardship on workers wishing to change jobs. The FTC's ruling now makes it unlawful for employers to enter into or enforce existing non-compete agreements, except for a narrow exception involving senior executives who make over $151,164 and are in policymaking positions.
The decision has received broad support from public comments and endorsements from unions, but it faces opposition from entities like the U.S. Chamber of Commerce and some corporate sectors that argue it's an overreach of FTC's authority and a threat to business investments in employee development. These groups are likely to challenge the rule in court.
The FTC, under Chair Lina M. Khan’s leadership, continues to take bold steps to regulate corporate practices, enhancing worker freedoms and competitive conditions in the labor market. The rule is set to become effective 120 days after its publication in the Federal Register, although potential legal challenges could delay its implementation.
This sweeping action not only frees millions of workers to pursue better opportunities without fear of litigation but also compels companies to compete more earnestly for talent, promising a more dynamic and equitable job market.
Read the FTC’s statement here and view the rule itself here
Author: Paul Hughes
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