The Federal Trade Commission (FTC) voted to approve a final rule banning noncompetes nationwide. The commission expects the ban will promote more than 8,500 new startups each year, boost worker wages and innovation, and will protect “the fundamental freedom of workers to change jobs.”
The FTC described noncompetes as an “exploitative practice” that prevent workers from starting new businesses or switching jobs, effectively forcing them to stay with their current employer. The FTC estimates that 30 million workers (one in five Americans) are subject to a noncompete agreement.
“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,” said FTC Chair Lina M. Khan. “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.”
With this new rule, majority of existing noncompetes will no longer be enforceable, with the exception of those pertaining to senior executives. The new rule takes effect 60 days after publication in the Federal Register.
Some legal analysts believe the rule, even though approved, could face resistance on a state-level.
