Federal Trade Commission Bans Noncompete Clauses

Federal Trade Commission bans noncompete clauses in worker contracts.

Government watchdog agency the Federal Trade Commission (FTC) announced Tuesday that it issued a new rule banning the use of noncompete clauses in the United States. In its announcement, the FTC claimed that this rule would “generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation.”

“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 certainly took its time in finalizing this rule change that it proposed publicly in January 2023. Following a 90-day public comment period the FTC claims that it received more than 26,000 comments, with over 25,000 of those in favor of a ban.

Under the new rule, existing non-competes for the “vast majority” of workers in the United States will no longer be enforceable after the rule’s effective date, though that is likely to be delayed by lobbying and special interest groups that plan to fight it in court.

Existing noncompetes for senior executives will “remain in force under the FTC’s final rule,” but employers will be banned from entering into new noncompetes with employees, which also includes senior executives.  Employers will also be required to provide notice to workers (other than senior executives) bound by an existing noncompete that they will not be enforcing any of them going forward.

The final rule will become effective 120 days after publication in the Federal Register, the agency said in a release.

Noncompete clauses in contracts are fairly common in the United States and many other countries, across every industry including gaming and esports. They are generally designed to keep departing/laid-off employees from taking on roles at companies that might be considered “competition,” but as the FTC pointed out in its new ruling, it also keeps employees from taking better-paying jobs while working at a company that it has signed a noncompete with.