Posted on 04/24/2024 5:16:43 AM PDT by CodeToad
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.
You do? When, where, how? I do not know you.
Does this mean Snowden is free and clear? All he did was change jobs. From working for the US to working for Russia. The Chinese will be ecstatic over this rule. Spying is now legal.
We crossed paths in a professional circle. I just happened upon a little business ad of yours. You weave a fine tale on FR, but your trolling is easy to spot.
Reno, you have been outed as a troll by someone who knows you personally. Begone.
Such as when "workers" (isn't that a Marxist word for them?) photocopy or phone-swipe reams of stats and trade secrets and bring them to a new company or venture for bonus compensation?
I always have found non-compete clauses an annoying idea to my personal self-interest. But so what? This decision is plainly unconstitutional over-reach. If you don't like that clause in the contract, your choice is to negotiate it away--or work somewhere else. There's no gun to your head.
Yep.
5.56mm
There is a bit of a gun to people’s heads. When the entire industry demands them you end up with little to no choice. I never signed a non-compete that I couldn’t live with, and I did walk away from a few positions because of it. Sadly, they have become commonplace now when 30 years ago I only ran into a few.
The old case law had limits that had to be for a few years, 5 at most typically, and within a geographic location, although some companies were national or global. Now, companies want permanent bans and global. I’ve even seen some that stated not working for an entire industry like engineering. “Can’t be an engineer for anyone, anyplace, and forever.”
This is unfair to businesses, and done by fiat. It needs to be reversed by SCOTUS.
Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job.
Isn’t that how D.C. operates now the nation has to lower it’s standards pure liberalism in action.
Illegals have now options too they can bring a weed eater to the office.
“Massive change to law through regulation and not legislation.”
Progressivism has been this for over 120 years now.
A noncompete agreement between a business and its managing partners is absolutely essential to the existence of the business.
This action by the FTC demonstrates why ALL federal regulations should not arise under the sole authority of the federal agencies. Every regulation should begin as no more than a proposal to Congress, and as a proposal that it should require the entire House and Senate legislative process (put before appropriate committees, voted up or down in the committees, offered from the committees to the full House and/or Senate body, with amendments accepted and needing an up or down vote by the full House and Senate) in order to become law, not a Congreessional rubber stamp over an agencies new entry in a federal register.
SCOTUS is unlikely to uphold noncompete agreements because they’re usually one sided agreements that provide no benefit to separated employees.
Going forward if a company really wants to have a non-compete agreement in place then what they need to do is say, for instance, that after you leave the company you cannot work in that industry for twelve months.
The benefit to the employee then has to be twelve months of compensation.
That would arguably pass muster because both parties benefit and not just one.
What does not pass muster here is when an employer separates an employee and then says that for a period of time or perhaps indefinitely the employee is still subject to the rules of the employer.
That is employment without compensation...also know as slavery, a 13th Amendment violation.
SCOTUS would not rule on the merits of noncompete agreements.
SCOTUS would rule on the constitutionality of having a Federal agency impose its will on matters of law that are reserved to the states. And contract law is absolutely a state matter, not a Federal one.
That is a false premise (bolded). Non-competes are never for involuntary separation (layoffs). Only for voluntary separation.
Let me amend my previous statement. Non-competes can be for accepting an involuntary separation package. But they can never be for involuntary separation without a separation package. So the separation package is compensation.
Even Congress cannot impair private contracts without Due Process. I predict reversal by the SCOTUS.
The question is whether the worker was hired because they already had a unique skill set that the company desired, or if the worker was new and the company invested in them by training them to do the job?
Nobody wants a newly trained worker to leave the company after 9-12 months and take their newly-gained knowledge to a competitor.
-PJ
“SCOTUS would rule on the constitutionality of having a Federal agency impose its will on matters of law that are reserved to the states. And contract law is absolutely a state matter, not a Federal one.”
1. SCOTUS and any other Federal court will generally rule on whatever the hell they want to.
2. SCOTUS might not rule directly on contract law but where contract law violates established civil rights then they will.
“That is a false premise (bolded). Non-competes are never for involuntary separation (layoffs). Only for voluntary separation.”
Up until this ruling the state of Texas allowed noncompete agreements (NCA) even if an employee was terminated.
https://bergplummer.com/blog/non-competes/what-happens/
“Non-competes are still valid even if you’re fired from your job. The agreement is more focused on what happens after you leave an employer, regardless of the circumstances, so it still applies. Whether you were let go for legally invalid reasons is another matter, such as if you were discriminated against or retaliated against.”
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