In a 3-2 vote on Tuesday, the Federal Trade Commission (FTC) outlawed non-compete agreements.
Pending litigation, the new rule will take effect in 120 days, leaving existing non-compete agreements for the overwhelming majority of workers no longer enforceable. Some senior executives under non-competes will remain in place but employers will be restricted from beginning new agreements or attempting to enforce a new restriction against senior executives.
“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.”
FTC estimates claim the elimination of the practice will lead to new business formation growing by 2.7% each year, with an additional 8,500 businesses expected to be established once the new rules take place. The commission also expects more patents to be applied for after the elimination of the longstanding practice.
The FTC originally proposed eliminating non-compete agreements in January 2023. At the time, the NAB strongly disagreed with the proposal, enlisting the help of members of Congress to attempt to fight the proposed change. However, the commission claims it received more than 26,000 comments on the proposal, with 25,000 in support of the ban.
