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unenforceable and requires employers provide notice to current and former workers that their noncompete clauses are no longer in effect, with some exceptions.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 non-profit company that started in 1928. The broad purpose of BCA is to promote business self-regulation. BCA's mission is achieved by assisting consumers in resolving complaints with businesses and using that complaint information, along with other relevant information such as customer reviews, to forecast business reliability. With community support, BCA can identify trustworthy and ethical businesses and warn the public to avoid unscrupulous businesses whose purpose is to defraud the marketplace. BCA also helps businesses promote themselves by providing services and tools to protect their business and reach out to their customers. BCA obtains its funding from member businesses who support the mission and purpose of the organization and who agree to abide by high standards of ethical business practices.