In a landmark decision, the Federal Trade Commission (FTC) announced a final rule on Thursday that bans noncompete clauses across the country, marking a significant shift in labor and competition laws. The new rule aims to enhance job mobility, increase innovation, and stimulate new business formation by removing restrictions that have traditionally bound workers to their current employers.
FTC Chair Lina M. Khan highlighted the transformative potential of the rule, stating, "Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism." According to the FTC, the ban could result in the creation of over 8,500 new startups annually and lead to an average earnings increase of $524 per worker per year. Additionally, the rule is projected to reduce healthcare costs by up to $194 billion over the next decade.
The decision addresses the widespread use of noncompetes, which currently affect an estimated 30 million workers—nearly 20% of the U.S. workforce. These clauses have been criticized for limiting workers' freedom to change jobs, pursue entrepreneurial ventures, or simply seek better employment conditions.
While the rule effectively nullifies existing noncompetes for the vast majority of workers, it will maintain certain provisions for senior executives, defined as those earning over $151,164 annually and in policymaking roles. These executives will remain bound by existing noncompetes, although new ones cannot be enforced.
The FTC's move has been met with widespread support, evidenced by over 25,000 public comments endorsing the proposed ban. This final rule, set to take effect 120 days after its publication in the Federal Register, represents a fundamental change in how worker mobility and competition are managed in the U.S., promising a more dynamic and equitable labor market.
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