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  • Writer's pictureJoani Schumaker

FTC's Ban on Noncompetes Levels the Playing Field for Workers and Innovators

Updated: Apr 29


In a landmark move, the Federal Trade Commission (FTC) has enacted a final rule to ban noncompete agreements across the United States. This significant decision aims to safeguard workers' rights, foster innovation, and stimulate business formation. Let's delve into the key aspects of this ruling and its implications.


The FTC's final rule prohibits noncompete clauses, which restrict workers from seeking new employment opportunities or starting their own businesses. These clauses have long been criticized for stifling wage growth, impeding innovation, and hindering entrepreneurial endeavors. The rule is expected to unleash a wave of entrepreneurship, raise worker wages, reduce healthcare costs, and spur innovation.


Timeline:

  • January 2023: FTC proposes a rule banning noncompetes, initiating a 90-day public comment period.

  • April 23, 2024: FTC announces the final rule to ban noncompetes, following extensive public feedback.

  • 120 days after publication in the Federal Register: The rule becomes effective.


What to Expect:

  1. Increased Business Formation: The FTC estimates a 2.7% annual growth in new businesses, resulting in over 8,500 additional startups each year.

  2. Higher Worker Earnings: Average worker earnings could rise by an extra $524 per year.

  3. Lower Healthcare Costs: The rule may lead to savings of up to $194 billion in healthcare expenditures over the next decade.

  4. Enhanced Innovation: Expect an average increase of 17,000 to 29,000 new patents annually over the next decade.

Inclusion of Lower-Income Workers:

  • The ban on noncompetes applies to the vast majority of workers, except for senior executives earning over $151,164 annually.

  • Employers are prohibited from entering into or enforcing new noncompetes, even for senior executives.

  • Employers must notify workers bound by existing noncompetes that these agreements will not be enforced in the future.


Alternatives to Noncompetes:

  • Employers can utilize trade secret laws and non-disclosure agreements (NDAs) to protect proprietary information.

  • Rather than restricting workers, employers can attract and retain talent by offering competitive wages and improving working conditions.


The FTC's decision to ban noncompetes marks a significant milestone in safeguarding workers' rights and fostering a more dynamic and competitive economy. With an estimated 18% of U.S. workers previously bound by noncompete agreements, this ruling brings liberation to a substantial portion of the workforce. Now, workers are free to explore new opportunities and pursue their professional aspirations without the constraints of restrictive clauses, provided they don't exceed the income threshold of $151,164 annually. This newfound freedom empowers individuals to seek roles where their talents shine brightest and enables businesses to attract top-tier talent, fostering a landscape where the best talent and the best companies thrive. May the spirit of competition drive innovation and prosperity for all!


I'm personally excited to see where all my talented multifamily friends and partners land. Fair game! Let's play ball and watch the magic unfold!


~ J Schu




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Source: FTC.gov 

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