The Federal Trade Commission (FTC) is making headlines this week, announcing that noncompete agreements are now officially banned for businesses across the country.
All the power in the business world has typically resided with the companies that hire employees. However, in recent years, the tide has turned ever so slightly in favor of workers, with remote work becoming more popular and unions gaining ground.
Now, this FTC decision could have long-lasting benefits for employees, allowing them to work wherever they want without the threat of punishment.
FTC Announces Nationwide Ban on Noncompete Agreements
The FTC made a groundbreaking ruling this week, announcing that the government agency was banning noncompete agreements nationwide. This means that employees will be able to change jobs whenever they choose, free from legal action, financial penalties, and any other punishments that come with these kinds of contracts.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” – Lina M. Khan, FTC Chair
The rule change was proposed in January 2023, more than a year ago. And while the wheels of government move slowly, this ruling will have a substantial impact on the business world as a whole.
Why Is the FTC Banning Noncompete Agreements?
Noncompete agreements have been a big part of the business world for a long time, so how bad could they actually be for competition? Well, according to the ruling, these contracts have been stifling wages and innovation the whole time.
“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 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.” – Lina M. Khan, FTC chair
That’s right, the FTC discovered that as many as 8,500 startups are prevented from launching due to noncompete agreements. Beyond that, the ruling is expected to result in “estimated earnings increase for the average worker by an additional $524 per year” and ” lower health care costs by up to $194 billion over the next decade.”
Are All Noncompete Agreements Null and Void Now?
Given this kind of ruling, it’s understandable to wonder about the status of current noncompete agreements. After all, could something like this really get rid of this many contracts in a single ruling?
Well, that is indeed the case, as noncompetes for the majority of employees will no longer be enforceable after the effective date, which is 120 days after the rule’s publication in the Federal Register.
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However, there are a few exceptions. Noncompetes for senior executives — which were defined as anyone “earning more than $151,164 annually and who are in policy-making positions” — can remain in force if the business so chooses. Still, for most employees, this ruling could make a big impact on how they look for work in the future.
