New FTC Rule Bans Noncompete Agreements

Posted May 17, 2024 at 12:17 pm

The Federal Trade Commission (FTC) recently issued a final rule that bans noncompete agreements for staff members. This rule prevents companies from using contracts that stop employees from joining competitors.

Under the new FTC rule, announced on April 23, most existing noncompetes will no longer be enforceable after the effective date, which is slated for Sept. 4. Existing noncompetes for senior executives can remain in force, but employers are prohibited from entering into or enforcing new noncompetes for this group. The rule defines senior executives as employees earning more than $151,164 annually and who are in policymaking positions.

Employers will be required to provide notice to staff members other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them. Noncompete agreements currently affect around 30 million American employees.

The FTC believes that removing these restrictions will enhance competition for skilled labor and lead to higher wages. FTC Chair Lina M. Khan says the rule would allow Americans more freedom to change jobs, start new businesses or bring new products to market. The FTC states that firms can still protect their investments and proprietary information by enforcing trade secret laws and nondisclosure agreements (NDAs). Researchers estimate that more than 95% of employees with a noncompete already have an NDA.

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