New FTC Rule: Noncompete Agreements Banned

What is a noncompete agreement?

A noncompete clause is a provision in an employment agreement that prohibits the employee from competing against their employer for a specified period of time and within a defined geographic area after the employment relationship ends.

What the New Rule Does

The new FTC rule bans new noncompete agreements for all workers, including senior executives, effective January 1, 2023.

Existing noncompete agreements for senior executives, who represent less than 0.75% of workers, can remain in force.

The FTC estimates that the new rule will restore competition in the labor market for approximately 30 million American workers and save businesses $300 million or more annually.

Why is the FTC Banning Noncompete Agreements?

The FTC found that noncompete agreements harm competition in the labor market by:

• Preventing workers from moving to new jobs where they can earn higher wages
• Reducing innovation and economic growth
• Stifling entrepreneurship
• Depressing wages

Exceptions to the Ban

The FTC rule includes exceptions for noncompete agreements that are:

• Entered into in connection with the sale of a business
• To protect trade secrets or other confidential information
• Reasonably necessary to protect the employer's legitimate business interests

Conclusion

The FTC's new rule is a significant victory for workers and consumers. It will restore competition to the labor market, boost innovation, and save businesses money. The rule is a reminder that noncompete agreements are a relic of the past that have no place in the modern economy.

Note: This article is for informational purposes only and should not be construed as legal advice. Please consult with a qualified legal professional for advice on your specific situation.