FTC Announces New Rule Banning Noncompetes
Over 27% Increase in New Business Formation Expected
The Federal Trade Commission (FTC) announced a new rule that would ban employers from imposing noncompetes on their employees.
The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 27 per year resulting in more than $286 billion in new wages and nearly 1 million new jobs over the next decade.
“Noncompete clauses are a relic of the past that suppresses wages, stifle innovation, and harm workers,” said FTC Chair Lina M. Khan. “Today’s announcement is a major step forward in our effort to promote competition and protect workers across the country.”
The final rule will apply to all employers nationwide and will prohibit them from entering into or enforcing noncompete clauses with their employees. The rule will also make it illegal for employers to retaliate against employees who refuse to sign or comply with a noncompete clause.
The FTC’s action comes after years of study and public input. In 2021, the FTC issued a Policy Statement on Noncompetes, which outlined its concerns about the anticompetitive effects of these clauses. The FTC also held a public workshop on noncompetes in March 2022, where it heard from workers, employers, and experts about the impact of these clauses.
The final rule is a significant victory for workers and competition. It will help to level the playing field for workers, make it easier for them to start their own businesses, and ultimately lead to higher wages and more innovation.
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