The U.S. Federal Trade Commission (FTC) has issued a final rule banning noncompete agreements for the vast majority of American workers. The rule, finalized on April 23, 2024, is set to take effect 120 days after its publication in the Federal Register. The FTC estimates the ban will affect approximately 30 million workers, or nearly one in five American employees.
Noncompete clauses are provisions in employment contracts that prevent workers from joining competing businesses or starting their own in the same field for a period of time after leaving a job. Once primarily used for high-level executives, their use expanded to cover lower-wage workers in industries like fast food and retail. The FTC argues these clauses suppress wages, hamper innovation, and block entrepreneurs from starting new businesses.
The new rule generally prohibits employers from entering into new noncompetes with any worker after the effective date. For existing noncompetes, the rule bans them for all workers except senior executives, who are defined as those in policy-making positions earning more than $151,164 annually. Employers will be required to provide clear notice to workers other than senior executives that their existing noncompetes are no longer enforceable.
The commission voted 3-2 to approve the final rule. FTC Chair Lina M. Khan stated the ban will "ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market." The rule is already facing legal challenges from business groups, including a lawsuit filed by the U.S. Chamber of Commerce, which argues the FTC lacks the constitutional and statutory authority to enact such a broad prohibition.
