The Federal Trade Commission (FTC) on Tuesday issued a final rule to promote competition by banning noncompete clauses from employment contracts nationwide, protecting the freedom of workers to change jobs, increasing innovation, and fostering new business formation.
The FTC estimates that the final rule banning noncompetes will lead to:
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New business formation growing by 2.7% per year, resulting in more than 8,500 additional businesses annually;
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An increase in earnings for the average worker by $524 per year;
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A decrease in health care costs by up to $194 billion over the next decade; and
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An average increase of 17,000–29,000 more patents each year for the next 10 years.
The new rule stipulates that existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives — who represent less than 0.75% of workers — can remain in force under the final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.
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