The Federal Trade Commission has voted to ban non-compete agreements at the national level, saying that they are a “method of unfair competition.”
Non-compete agreements, which attempt to prevent employees from working for or starting competing companies, are especially prevalent in the tech world, where we've seen companies like amazon apply and then back out of a non-compete agreement for warehouse workers. . Acer even sued its former CEO for allegedly violating a non-compete policy by becoming a Lenovo consultant.
The change will force companies to reverse existing non-compete agreements and notify employees of the change. Existing non-compete agreements for senior executives can remain in effect, but companies cannot enter into or enforce new agreements. (The FTC defines senior executives as “policy-making” workers who earn more than $151,164 a year.)
The FTC found that there are several alternatives to non-compete agreements, including trade secret laws and confidentiality agreements. “Non-compete clauses keep wages low, stifle new ideas, and rob the American economy of dynamism,” FTC Chair Lina Khan says in a statement.
The FTC first proposed banning non-compete agreements in January 2023 and estimates that about 30 million workers are currently trapped in one. The agency says the ban will lead to the creation of more than 8,500 businesses each year while reducing health care costs and increasing compensation for workers. The new rule will take effect 120 days after its publication in the Federal Register.