FTC Bans Noncompete Agreements

The Federal Trade Commission voted 3-2 on Tuesday (April 23) to ban companies from including noncompete agreements in employees' contracts.

The FTC estimates that about 30 million people are subject to noncompete agreements, meaning they cannot work for a competitor or start a similar business for a certain amount of time after leaving their job.

Under the new rule, companies would have to let past and current employees know they will not enforce the agreements. However, contracts signed by senior executives in "policy-making positions" who earn at least $151,164 will remain in effect.

The FTC said that banning noncompete clauses will lead to the creation of 8,500 new businesses each year.

"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," FTC Chair Lina Khan said in a statement.

The new rule will take effect 120 days after publication in the Federal Register. However, its implementation could be delayed, as several pro-business groups, including the U.S. Chamber of Commerce, have said they plan to file a lawsuit to block it.

"This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy," Chamber of Commerce President and CEO Suzanne Clark said. "The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked."