FTC Issues Final Rule Banning Noncompete Clauses

April 24, 2024
The FTC says about 30 million people in the U.S. are subject to noncompete agreements.

This piece has been updated to include a response from the National Association of Manufacturers.

The Federal Trade Commission is moving ahead with a ban on noncompete clauses in employer contracts, fifteen months after proposing it. Three of the five members voted in favor of adopting the rule, saying the practice is anticompetitive. According to the federal agency, 1-in-5 U.S. employees, or about 30 million people, are currently working under contracts with such clauses.

The rule will meet resistance. The U.S. Chamber of Commerce says it will sue to block the rule from coming into effect, and the two members of the FTC who voted against it said it overstepped the agency’s authority to ban noncompetes.

Under the rule, which can be enforced 120 days after it enters the federal register, noncompete clauses in existing contracts will no longer be enforceable except for senior executives, defined by the rule as workers in policy-making positions who earn more than $151,164 annually. The rule would also prohibit the inclusion of new noncompete clauses in employee contracts, including for senior executives.

FTC members supporting the new rule said that most comments on the rule were positive and that it would boost the economy to allow U.S. employees to switch jobs and start businesses in ways existing noncompete clauses currently restrict.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism,” said FTC Chair Lina M. Khan.

The FTC predicts that the ban against noncompetes will increase new business formation by 2.7% annually, increase the average worker’s earnings by $524 a year, and increase the number of patents filed each year.

In the U.S. Chamber of Commerce’s announcement today that it would sue to block the rule, CEO Suzanne P. Clark called it a “blatant power grab” that would undermine U.S. businesses’ ability to compete.

“Today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy,” she wrote. “This decision sets a dangerous precedent for government micromanagement of business.”

The National Association of Manufacturers also criticized the rule, saying it would threaten U.S. manufacturers' attempts to protect intellectual property. Chris Netram, NAM's Managing VP of policy, said in a statement that two-thirds of NAM members said the ban on noncompete clauses would be an obstacle to normal operations.

"The ban could force manufacturers to revamp their human capital operations completely, enact burdensome controls or silo parts of their operations from each other, which would result in less training for employees, less collaboration, less innovation and less efficiency," Netram wrote. "The NAM will weigh all options in response to the commission's vote, so that well-paying manufacturing jobs and innovation are not compromised."

In a February 2023 interview with IndustryWeek, industrial talent expert Alex Martin said that the ban on noncompete clauses would likely only have a limited effect on manufacturing, because most manufacturing noncompetes are specific to individual companies, technologies, or intellectual properties.

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