The Federal Trade Commission yesterday announced the issuance of a final rule that bans noncompete clauses nationwide, although the regulator did soften its stance on the usage of noncompetes for senior executives.
The rule will go into effect 120 days after it is published in the Federal Register.
Noncompete clauses are conditions placed on employees that prevent them from taking new jobs or starting a new business unless they do so in a different industry or a different part of the country. The FTC estimates that 30 million workers are subject to a noncompete clause. Noncompete clauses are a way for companies to protect themselves and their interests from unfair competition.
Under the new rule, noncompete clauses would be considered an unfair method of competition under the Federal Trade Commission Act. Doing so will reduce healthcare spending by between $74 and $194 billion over the next decade, help facilitate the creation of as many as 8,500 new companies per year, increase earnings, and create an uptick in new patents and innovation. The average worker will earn $524 more per year once the final rule goes into effect, the FTC estimates.
The FTC did make a couple of changes from its original proposed rule, specifically carving out an exception for senior executives. The rule defines senior executives as those making at least $151,164 per year and who are policy-making positions at their companies. Noncompete clauses for those executives can remain in place, but employers are prohibited from entering into or enforcing new noncompete clauses with senior executives. Senior executives meeting this definition represent about 0.75% of the workforce, according to the FTC.
The FTC said it received more than 26,000 comments on the proposed rule, more than 25,000 of which were in support of the ban on noncompete clauses.
The U.S. Chamber of Commerce said it plans to sue the FTC to keep the rule from going into effect.
