FTC Banned Noncompetes Nationwide

On April 23rd, 2024, the Federal Trade Commission (FTC) issued a rule banning noncompete agreements nationwide, which will grant employees the freedom to change jobs while also improving competition and innovation overall.

The Commission concluded that noncompetes restrict competition in labor, product, and service markets, leading to less innovation and business creation and contributing to increased market concentration and higher consumer prices.

The rule is expected to increase business formation by 2.7% yearly, adding over 8,500 businesses annually, boost worker earnings by approximately $524 each year, increase patents, and reduce healthcare costs by up to $194 billion over a decade.

What Are Noncompetes?

Noncompetes are contractual agreements that restrict employees from working in a competing business or starting a similar business for a certain period after leaving a job. These clauses are intended to protect a company’s intellectual property and investments in employee training, but they tend to be exploitative, often keeping workers in a job they want to leave or forcing to change their field or locations.

Under the FTC’s updated regulation, noncompete agreements for most employees will cease to be enforceable after the rule becomes effective. However, existing noncompetes for some senior executives, who constitute less than 0.75% of the workforce, will continue to be valid.

It prohibits the creation or enforcement of new noncompetes, and employers must inform workers that their current noncompete agreements will no longer be enforced.

Improved Wages & Working Conditions

The Commission noted that employers have alternatives to noncompetes, such as trade secret laws and non-disclosure agreements (NDAs), which already effectively safeguard sensitive information.

The FTC suggests that companies should improve wages and working conditions in order to retain their employees rather than lock them in with noncompetes.

Key Takeaways from Final Rule

The final rule brings significant changes to the enforcement of noncompete agreements, especially for certain senior executives:

• Existing noncompetes for senior executives will remain enforceable.
• New noncompetes cannot be created or enforced for these executives, who are defined as earning over $151,164 annually and holding policy-making roles.
• The requirement for employers to legally modify existing noncompetes has been removed to simplify compliance.
• Employers must notify workers with existing noncompetes that these agreements will not be enforced in the future, using model language provided in the rule.

The rule will be effective 120 days after publication in the Federal Register, and violations can be reported to the Bureau of Competition.

An Experienced NJ Employment Attorney Can Help You

Employment law matters are complicated, and any issues that arise can have long-standing effects on your business or career. Whether you are an employee who has been subjected to discrimination, need legal assistance with everyday workplace issues such as contracts or severance packages, or have another legal issue entirely, our employment attorneys in Red Bank, NJ, Marlton, NJ, Newark, NJ, New York, NY, and Philadelphia, PA can help you. We will provide you with a clear and thorough evaluation of your case, as well as all legal options and recourse available to you. Contact us today for a free consultation.