The Federal Trade Commission (“FTC”) has banned non-compete agreements, finding them to be an unfair method of competiton. The new rule is an effort to allow workers to more freely change jobs, increase innovation, and foster the creation of new businesses.
A non-compete imposes a contractual obligation that often prevents workers from taking new jobs or starting new businesses. Non-competes can result in workers staying in jobs they want to leave or suffer other harms and costs, such as changing to a lower paying field, being forced to relocate, leave the workforce, or defend against expensive litigation.
Under the FTC’s new rule, most existing non-competes will be unenforceable after the rule’s effective date, though existing non-competes for senior executives, less than .75% of workers, can remain in effect. The FTC defines senior executives as workers in policy-making positions who earn more than $151,164 annually. Employers are banned from entering into or attempting to enforce any new non-competes, even for senior executives. In addition, employers will be required to provide notice to workers, other than senior executives, who are bound by an existing non-compete that they will not be enforcing it against them.
The rule will be effective 120 days after it is published in the Federal Register.
