FTC's Decision on Noncompete Agreements Favors Workers' Rights

The FTC's new rule officially bans noncompete agreements, enabling workers to pursue freedom of work.

May 1, 2024

In a significant move for workers' rights, the Federal Trade Commission (FTC) voted 3-2 to ban post-employment noncompete agreements. The rule becomes effective 120 days after the final rule is published in the Federal Register, expected in late August or early September 2024. This sweeping decision will impact all workers across various employment types, aiming to protect their freedom to pursue new opportunities and entrepreneurship.

The FTC's rationale behind this ban is rooted in promoting fair competition and enhancing labor market dynamics. The agency found that noncompete agreements often restrict the freedom of American workers, suppress wages, and stifle innovation. The FTC estimates that by banning these agreements, it could foster the creation of new businesses and increase workers' earnings by a substantial amount over the next decade.

Under the final rule, noncompete agreements will be broadly defined to include any terms or conditions that prevent a worker from seeking or accepting work with another employer or starting a business after leaving their job. This definition encompasses a wide range of workers, including employees, independent contractors, interns, and sole proprietors.

Exceptions to this ban include existing agreements with senior executives, defined by specific earnings and job duties criteria. Employers will be required to issue notices to nonsenior executive workers with existing noncompete agreements, informing them that these agreements will no longer be enforced. State laws are also broadly invalidated insofar as they permit or authorize conduct banned by the new rule.

While legal challenges loom ahead, this decision marks a pivotal moment in reevaluating the impact of noncompete agreements on workers' rights and economic considerations. Employers are urged to review their noncompete policies and strategies in light of this development, recognizing the evolving landscape of employment regulations and the importance of promoting fair competition while supporting workers' mobility and entrepreneurship.