News of the Day April 24, 2024
FTC Votes to Ban Most Employers from Using Non-Compete Clauses, Legal Challenge Expected

The Federal Trade Commission (FTC) on Tuesday voted to ban for-profit US employers from making employees sign agreements with noncompete clauses.

The FTC estimates that 30 million people – one in five US workers – are bound by a noncompete clause in their current jobs. And for most of them, the agency asserts, such a clause restricts them from freely switching jobs, lowers wages, stifles innovation, blocks entrepreneurs from starting new businesses and undermines fair competition.

The final rule is a somewhat narrower version of the proposed rule that the agency put out for public comment in January of 2023.

It will ban for-profit employers from issuing new noncompetes to anyone.

And – with one exception – it makes currently existing noncompete agreements unenforceable after the rule’s effective date, which is set at 120 days from the rule’s publication in the Federal Register.

The rule, however, does allow currently existing noncompete agreements for senior executives to remain in force. Senior executives are defined as workers earning more than $151,164 annually who also are in a “policy-making position.”

Employment lawyers expect there to be legal pushback from employers and business groups that may delay enforcement of the rule while it is challenged in court, and possibly prevent it from ever going into effect if those suing the FTC prevail.

Daryl Joseffer, chief counsel of the U.S. Chamber’s Litigation Center, characterized the FTC rule banning noncompetes as an “administrative power grab.” “They’re trying to regulate a century-old business practice across the entire economy,” Joseffer said.

If the rule is allowed to stand, it opens “a pandora’s box, where they can micromanage any aspect of the economy,” the Chamber’s chief policy officer, Neil Bradley, asserted.