In late April, the Federal Trade Commission (FTC) issued its final rule banning noncompete agreements. “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from more than 8,500 new startups that would be created a year once non-competes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Noncompete agreements are employment provisions that ban workers at one company from working for or starting a competing business within a certain period of time after leaving a job.
Non-competes often hamstring workers into staying at jobs that are oppressive because they are unable to leave and get a job in the same industry. They can lose out on pay increases because employers don’t have to worry about the employee leaving to work for a competitor.
The Economic Policy Institute estimates that as many as “one out of every four private-sector workers—including low-wage workers—are required to enter noncompete agreements as a condition of employment.”
In issuing its final rule, the FTC says that banning noncompetes will lead to new business formation growing by 2.7 percent per year, resulting in more than 8,500 new businesses created each year. The rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower healthcare costs by up to $194 billion over the next decade. The final rule is expected to help drive innovation, leading to an average increase of 17,000 to 29,000 more patents each year for the next 10 years.
The final rules will go into effect on September 4, 2024.