Schorr & Associates is happy to report that after decades of being handcuffed by burdensome non-compete clause restrictions, workers will hopefully be freed from clauses that prohibit them from working for their employers’ competitors. The Federal Trade Commission (FTC) issued a new rule yesterday that bars the burdensome contracts, which currently prevent roughly 30 million American workers from leaving their jobs for new ones in the same industry.
While some non-compete contracts theoretically protect legitimate business interests, in recent years they have been used in increasingly restrictive ways. Workers ranging from fast-food employees to financial services personnel have found themselves prevented from pursuing other employment in the same industry or within a reasonable distance from their homes, and this has suppressed their ability to earn higher compensation and seek better opportunities. Studies investigating the impact of non-competes found that they suppress both wages and upward mobility.
The new rule was originally proposed in January of 2023, and at the time the agency invited public comment on its impact. After receiving and reviewing over 26,000 submissions as well as empirical research on how non-competes affect competition, the commission adopted the rule. A summary of the ban’s provisions sets forth that non-competes represent “an unfair method of competition.” Though it allows existing non-competes with senior executives to remain in force, it requires employers to notify all other workers with existing non-competes in place that they are no longer enforceable.
The FTC rule defines a non-compete clause as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
The new rule will become law 120 days after it is published in the Federal Register, which is expected to happen in the next few days, but it is also expected that several entities will attempt to block it from being enacted. Despite business objections, many industry professionals have praised the ban, and FTC chair Lina M. Khan issued a statement saying that it “will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market.” The FTC’s research indicates that the ban could facilitate creation of 8,500 start-ups in a year and up to $488 billion in increased wages for workers over the next ten years. The Rules can be accessed and read here. If you need information about your rights under an existing non-compete clause, the experienced employment attorneys at Schorr & Associates are here to help. Contact us today to set up a time for us to meet.