In April 2024, the U.S. Federal Trade Commission (FTC) approved a proposed final rule that affects millions of workers. The final rule will ban most new noncompete employment contract clauses. The rule also makes all existing noncompete agreements unenforceable and requires employers provide notice to current and former workers that their noncompete clauses are no longer in effect, with some exceptions. The exceptions are noncompete clauses that cover senior executives, workers that earn more than $151,164 annually and who are in a “policy-making position”, sale-of-business non-competes, and causes of action that accrue before September 4, 2024. Some agencies and organizations are looking to challenge the rule.
A “noncompete clause” is a contractual term that prevents a worker from working for a competing employer, or starting a competing business, within a certain geographic area and period of time after the worker’s employment ends. This rule also applies to some agreements that require employees to pay back training costs to the employer if the employee is terminated within a specified time period. Companies use noncompete clauses for workers across various industries and job levels. An estimated 30 million workers are subject to a noncompete.
FTC Chairperson Lisa Khan said, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.” The agency believes workers will be able to take new jobs, start a new business, or bring a new idea to market with the ban on noncompete clauses.
Noncompete Alternatives
Some alternatives to noncompetes are trade secret laws and non-disclosure agreements (NDAs). Both provide employers with the means to protect proprietary and other sensitive information.
Employers can also choose to improve wages and work conditions to compete with opposing offers.
Reporting Violations
The rule becomes effective 120 days following its publication in the Federal Register. Some agencies and organizations are looking to challenge the rule. Once the rule is effective, suspected violations can be reported to the Bureau of Competition.
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About Business Consumer Alliance
Business Consumer Alliance (BCA) is a nonprofit organization focused on strengthening integrity in the marketplace. We help consumers by resolving disputes and providing transparent business reputation reports. At the same time, we support contractors, movers, and small business owners with contract assistance, arbitration services, reputation management resources, along with business and HR advice. We’re here to help good businesses stand out and succeed while protecting the public.