FTC Votes to Ban Noncompetes

April 7, 2024

The Federal Trade Commission (FTC) has voted to approve a regulation which would ban noncompete agreements on a national level. The regulation stipulates that noncompete agreements unfairly limit workers’ mobility and lead to lower pay.

The agency first proposed the ban on noncompete agreements in January of 2023, asserting the argument that they unfairly limit competition.

Generally, noncompete agreements prohibit an employee from leaving their current company to pursue employment with a competing company, and they are more commonly found in senior management positions. This new FTC rule would ban noncompetes for all workers, including senior executives, as an unfairly competitive practice.

Existing noncompetes for senior executives, defined as workers in a “policy-making position” who earn over $151,164, would be able to remain in effect. However, noncompetes for other workers would become unenforceable following the rule’s adoption.

The FTC estimates that the new ban on noncompetes will boost new business formation by 2.7% annually, creating more than 8,500 additional new businesses yearly. The FTC also estimates that the new ban will increase the average worker’s wages by an additional $524 annually and lower health care costs by up to $194 billion in the next 10 years.

Opponents of the new rule argue that it will stifle the innovation of entrepreneurs and assert that without noncompete clauses, large corporations will be able to poach talent from leading small businesses.

The FTC’s proposed new rule is expected to receive legal challenges, in particular, from the U.S. Chamber of Commerce.

For more information on what this new proposed rule could mean for Illinois business, contact the qualified attorneys at Rock, Fusco & Connelly.