The Federal Trade Commission issued the following statement.
Today, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation. “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,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.” The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade. In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule. Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation. An estimated 30 million workers—nearly one in five Americans—are subject to a noncompete. Under the FTC’s new rule, 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 FTC’s 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. In January 2023, the FTC issued a proposed rule which was subject to a 90-day public comment period. The FTC received more than 26,000 comments on the proposed rule, with over 25,000 comments in support of the FTC’s proposed ban on noncompetes. The comments informed the FTC’s final rulemaking process, with the FTC carefully reviewing each comment and making changes to the proposed rule in response to the public’s feedback. In the final rule, the Commission has determined that it is an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to enter into noncompetes with workers and to enforce certain noncompetes. The Commission found that noncompetes tend to negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers. The Commission also found that noncompetes tend to negatively affect competitive conditions in product and service markets, inhibiting new business formation and innovation. There is also evidence that noncompetes lead to increased market concentration and higher prices for consumers. Alternatives to Noncompetes The Commission found that employers have several alternatives to noncompetes that still enable firms to protect their investments without having to enforce a noncompete. Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA. The Commission also finds that instead of using noncompetes to lock in workers, employers that wish to retain employees can compete on the merits for the worker’s labor services by improving wages and working conditions.Changes from the NPRM
Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.
Additionally, the Commission has eliminated a provision in the proposed rule that would have required employers to legally modify existing noncompetes by formally rescinding them. That change will help to streamline compliance.
Instead, under the final rule, employers will simply have to provide notice to workers bound to an existing noncompete that the noncompete agreement will not be enforced against them in the future. To aid employers’ compliance with this requirement, the Commission has included model language in the final rule that employers can use to communicate to workers.
The Commission vote to approve the issuance of the final rule was 3-2 with Commissioners Melissa Holyoak and Andrew N. Ferguson voting no. Commissioners’ written statements will follow at a later date.
The final rule will become effective 120 days after publication in the Federal Register.
Once the rule is effective, market participants can report information about a suspected violation of the rule to the Bureau of Competition by emailing noncompete@ftc.gov
Kingfish note: If you are a hairdresser and work for Mike Land, this is your chance to get out now, hehe.
33 comments:
So as a business owner, If I pay thousands of dollars to train a technician they can just leave and go to another company or start their own business. The current administration is ridiculous.
Non compete hiring agreements were intended to serve a good purpose.
A sales executive who leaves employer A with an extensive list of clients and specific knowledge of Employer A's marketing strategy and manufacturing secrets - and takes all of that to Employer B is like the guy who enters the portal and takes the play-book and signals with him.
But I thought the courts had (as recent as last year) ruled that federal agencies are exceeding their authority by making up such rules and considering them law.
I may be wrong, but the FTC doesn't control everything in all parts of business. Their decision to do away with non-competes is not necessarily the death nail as JJ says in its headline.
But we will see - lots, and lots, and lots of state litigation that can be coming forth from this, along with plenty of other areas that the FTC may not have control over.
Be fun to watch - and since I don't hold a non-compete, on either side - all I want to do is have the popcorn concession; unless of course there may be a non-compete on who gets that concession.
Not an end, KF. The beginning of much litigation. Previously entered into agreements cannot be changed by the federal executive branch, even the Biden branch who somehow left in place the non-competes for 'top executives' --- read, the rich, who of course they claim to not give a damn about except for receiving their campaign contributions.
Many many years of lawyers, and of course therefore fees, to decide if these appointees can cancel legally entered into documents among intelligent individuals.
Nice try on behalf of the current administration - if nothing else,feeds their contributor base with a lot more fees, therefore more available to contribute to the campaigns.
Mike Land comment!! Haha! IYKYK
Kingfish note is too funny...
The real problem with government is that it is made up of career politicians and bureaucrats who have NEVER had a real job or started and ran their own businesses.
I suspect this will be challenged. I see it as extreme overreach by the federal government.
To be enforceable, the courts in Mississippi have ruled that the non-compete must be narrowly tailored geographically and in duration. Banning them outright harms the business owner.
As a business owner that operates offices across eight states and has several hundred employees I support this new rule. There are better ways to retain employees than use of a non-compete. Better-than-competitive pay, good benefits and, very importantly, a work environment that is employee-friendly, to name just a few. Not only do we not utilize non-compete agreements, we encourage employees who desire to leave to do so. My perspective is that if a company must rely on non-compete agreements to retain employees then they just ain’t got the right “recipe” in their corporate culture.
will never survive Supreme Court, much less the 5th circuit. The only reason to vote for Trump is to end this federal overreach.
The FTC, like the ATF, is not the legislative branch, and can't make law.
It hasn't occurred to some of you that those whose workplace was "bought out" and they were "let go" because they were getting the highest wages and salary aren't allowed to even "consult".
Corporations get well repaid for whatever "training" they gave employees with lower wages in their early years.
Indeed, more than a few employees in US industries whose jobs were moved to China or India or even Panama and some whose innovations were patented in their name AND that of the company, couldn't "sell" their knowledge nor start up their own small local companies by buying the old factories and equipment that couldn't be moved.
Try not to "knee jerk".
Nothing like some "free market" conservatives in these comments wishing to restrict the free market. Don't want an employee to leave? Pay and treat them well. Share in the profits of your company. Don't get butt hurt when Johnny wants to leave because the other guy wants to pay him a 5% increase and another week of vacation that your selfish a$$ didn't wish to provide it to him. That's the free market at work.
Just amazing to me that people really advocate for "trapping" an employee in place instead of just providing fair pay and benefits to retain that employee.
Except if you're a nonprofit
@7:43 This guy gets it. The best companies create a work environment where employees WANT to stay. This can be accomplished in a variety of ways. None of those ways includes the fear of employer retribution.
Also, I have been a manager with a company that required non-compete agreements for all employees. I have enforced them as management and had to navigate that same non-compete when I left that company. Employees (former employees) can easily get out of a non-compete, IF they can afford a good attorney. You see, it's not the legality of the agreement that restrains the employee - it's the expense of the litigation to beat it.
It's truly remarkable how people have been convinced by corporate money to keep voting for corporate interests over their own personal interests. Corporations don't give a damn about you and your family if a dollar stands in the way.
But keep on ranting about administrative overreach all while propping up a dude that doesn't even believe in the idea of America and what it was founded on...
@ 8:19 is right. Open up the free market.
Let the market decide your pay and value. So companies should be able to keep a thumb on their employees futures and salaries?
I remember an exec leaving my organization without a non-compete a few years back, and my organization negotiating a departing non-compete with this executive as they left.
The comments are interesting. The fundamental question is how much regulation ultimately keeps a free-market economy wild enough to drive innovation, competitiveness and ultimately productivity gains in our society.
Pure capitalism always has a winner. It always ends in a monopoly.
You can argue that anti-trust legislation, breaking up monopolies, forces continuous competition, innovation, etc.
In this case of non-competes, it will be interesting to see how business re-orients with this regulation removing this concept in a lot of contexts. And it will be interesting to see if it leads to overall more innovation and true productivity.
Sounds like a lawyers wet dream.
Another Conservative who votes for free market here. Companies will cut you lose on a whim, so should employees have some bizarre loyalty to the employer?
This is business. If you keep your employees happy and paid they wont leave for a competitor.
You want skilled labor/good employees then earn them.
Sounds like the rich business owners here are a little upset. This is great and as a current non-compete salesperson I can not wait for this to happen! Like all the other commenters, you want a good worker to stay then they are worth paying more than the competition. Suck it up yuppies.
Has anyone ever tried enforcing a nom-compete other than Mike Land? Almost impossible.
Thanks Joe. This is a big win for working Americans and the middle class. Workers aren’t the property of their employer. Next, we need to end providing health insurance benefits from the employer. It makes no sense that someone has to consider their health insurance when considering a new job.
Now the proletariat are another step closer to controlling the means of production!
What about NDA’s?
"As a business owner that operates offices across eight states and has several hundred employees I support this new rule. There are better ways to retain employees than use of a non-compete."
Seems to me, as a business owner operating in eight states with several hundred employees, you ought to know that non-competes have zero, nothing, nada to do with an effort to retain employees.
A non-compete is included in a job offer and acceptance document for the sole purpose of holding a departing malcontent's feet to the fire in the form of a typically unenforceable threat.
They're often found with sales, process engineering and product design jobs, etc and are not worth the paper they're witten on. But they have zero with an intent to retain an employee.
30M non- compete in the country! Horse hockey!!! Affecting the working middle class, not! And the comment about health insurance. Buy it yourself and make the employer pay you more. Then when you leave you are good to go!
"A non-compete is included in a job offer and acceptance document for the sole purpose of holding a departing malcontent's feet to the fire in the form of a typically unenforceable threat.
They're often found with sales, process engineering and product design jobs, etc and are not worth the paper they're witten on. But they have zero with an intent to retain an employee. "
As a physician I have had to navigate the "non-compete" jungle when changing jobs. Some have been used successfully, and some have failed, so it is a very checkered landscape as far as the effect of these agreements is concerned on future manpower decisions.
I have to sign one to receive a servance package. I went to work for a competitor a few months later, when they tried to collect my Attroney convinced them that we would fight and they gave up after a couple of tries
I currently work under a non-compete. I've been in sales in the same industry for over a decade. When the MS company was bought out by a nationwide corporation signing a new NCA was required with the implication of sign or you don't have a job. I have no access to trade secrets--yet I can't accept a similar job in the same industry for two years. The company is effectively 'buying' my relationships that I've built with customers. But in 'buying' those relationships the only thing I received was the right to keep the same job I'd already been doing for over a decade. The company received local relationships, the profit that comes with those, a market presence, and locked me in with them without the opportunity to go elsewhere for two years after I leave.
No training has been given to me on how to talk to, or give good service to customers. And the icing on the cake--the new company benefits are substantially worse than the company they bought out even though they are MUCH larger. I believe this is a win for employees.
4:02 So you're bragging here publicly (anonymously) that you're a cheat and a liar.
Did you return the severance?
Not the OP but why return it @8:27?
My terms of employment are that I do the best job possible, give 100%, be a team player and help out where ever I can and in return I get paid fairly for my time, energy, and effort. I will bust my ass but when the company fails to give raises that are in line with increased pay elsewhere in my industry they will not be keeping me. Should someone else want to pay me more for my energy and effort than I will gladly go somewhere else.
If a company wants my loyalty they must be loyal to me first and I have not found a single company, organization, or agency that I have worked for or anyone I know has worked for that is loyal to employees. Every single one of those places has expected unwavering loyal for nothing in return though.
If a company can chase nothing but the almighty dollar and the highest profits because capitalism then every employee can chase the almighty dollar and the highest profits for their products, their time, energy, and effort.
For the physician at 9:03 - You didn't say whether your non-competes encouraged you to stay at any of the jobs. The point made was that NCA's are not used for that purpose as was claimed.
If they have anything at all to do with an employer's retention leverage, that has not been shown to be true.
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