Near the end of April, the FTC announced a new rule banning noncompetes, which affect nearly 30 million Americans by the FTC’s own estimations. That is roughly one in five American workers. Existing noncompetes for average workers will no longer be enforceable, while a very small percentage of senior-level noncompetes will be allowed to remain. Employers are also barred from entering new noncompetes with any and all employees, including senior-level executives.
The FTC claims that this is a victory for American workers, stating, “Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. 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.”
What exactly is a noncompete? According to Cornell Law School, “it is an agreement where one party promises not to engage in conduct that would increase competition for the other party for a specific period of time.” Essentially, it prevented workers for a business from telling competitor businesses information about certain “trade secrets” and other privileged information that may cause competition for the initial business. With noncompetes now banned, one can argue that the “free market” will be allowed to develop in a healthier way, with the FTC claiming it will generate thousands of new jobs every year.
Sources:
Legal Information Institute. Noncompetition agreement. Legal Information Institute. https://www.law.cornell.edu/wex/noncompetition_agreement
Staff in the Office of Technology. (2024, April 29). FTC announces rule Banning noncompetes. Federal Trade Commission. https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes
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