Federal Trade Commission Finalizes Rule Banning Employers from Including Noncompete Clauses

On Tuesday, April 23, 2024, the Federal Trade Commission (FTC) voted to ban agreements with noncomplete clauses. In most states, for-profit US employers have been making employees sign these agreements which prevent them from changing jobs no matter the difference in pay or working conditions. President Biden stated on Tuesday that “workers ought to have the right to choose who they want to work for.” This ban could potentially affect around 30 million workers and increase wages and benefits by up to $488 billion over a decade.

One in five US workers are currently constrained by noncompete clauses in their employment, which impairs fair competition, lowers wages, eliminates the possibility of starting new businesses, or freely switching jobs. The FTC’s commissioners voted on the final rule and the decision was a result of a 3-to-2 vote. The final rule will completely ban new noncompete clauses from being issued and will allow new clauses that invalidate currently existing noncompete agreements. There is another exception to the rule which protects current noncompete agreements for senior executives. The FTC defined senior executives as employees in “policy-making positions” earning more than $151,164. An FTC staff member elaborated on this exception claiming that senior executives are most likely to have an attorney present when negotiating contracts and can secure compensation when signing noncompete agreements.

The ban will be nationwide, annulling state laws regarding the agreements. California, North Dakota and Oklahoma have almost completely banned noncompete agreements, while Colorado, Maryland, Oregon and Rhode Island allow them with certain limitations.

Legal pushback is expected from employers and business owners that might attempt to delay the process and possibly prevent it from going into effect. The chief counsel of the U.S Chamber’s Litigation Center, Daryl Joseffer, claims that the FTC’s rule is an administrative power grab that will attempt to regulate a business practice across the entire economy. Neil Bradley, the Chamber’s chief policy office, added that the rule will “open a pandora’s box, where they can micromanage any aspect of the economy.”

The ban would be extremely beneficial for a majority of workers who want to change jobs without fearing any sort of retaliation from their employer. Even if the nationwide ban on noncompete clauses does not go into effect, it is recommended for employees to understand what they are being asked to sign and to ask questions if they don’t.  In California, employees can refuse to sign non-compete agreements in almost all situations.