Goodbye, non-competes.
The U.S. Federal Trade Commission today released its final rules addressing non-compete clauses by banning all future agreements.
Non-competes have traditionally restricted workers from taking jobs with a competitor or starting a competing business. The employment clauses — which are applied to wide-ranging businesses — have been particularly contentious and polarizing in the technology sector.
The FTC and others portray the clauses as stifling innovation and harming workers while some argue the agreements are necessary protections for intellectual property and trade secrets.
“Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned,” said FTC Chair Lina Khan, in a statement.
The FTC proposed the rule change in January 2023. The commission received 26,000 public comments on the plan, the vast majority in favor of a ban.
The U.S. Chamber of Commerce, an advocate for free enterprise, vowed to sue the FTC over the regulation.
“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers and our economy,” said the organization’s president and CEO Suzanne Clark in a statement.
The rule also strikes down existing non-competes — except for senior executives, who comprise less than 1% of the workforce, according to the FTC.
In the case of top leadership, the clauses “remain in force because this subset of workers is less likely to be subject to the kind of acute, ongoing harms currently being suffered by other workers subject to existing non-competes and because commenters raised credible concerns about the practical impacts of extinguishing existing non-competes for senior executives,” states the rules.
But going forward, no new non-competes will be permitted for senior executives.
The FTC estimates non-compete clauses cover roughly one-in-five American employees, or about 30 million workers.
The commission predicts that employees on average will earn an additional $524 per year thanks to the new rules.
In 2019, Washington state approved its own limits on non-compete agreements, making them allowable only for employees earning more than $100,000 a year and independent contractors who made $250,000 annually. The state law also capped the clauses at 18 months.
The final rule from the FTC takes effect 120 days after it’s published in the Federal Register and supersedes the state law.
In June 2022, Microsoft announced that it would no longer include non-compete clauses in its U.S. employment agreements, and would remove the clauses from existing agreements. The change applied to all employees except senior leaders of the Redmond, Wash.-based tech giant.
“Microsoft believes that American innovation thrives when people have the freedom to pursue the career path they feel best aligns with their passion and skills,” Microsoft President Brad Smith said in a statement Tuesday.
Seattle-based Amazon has sued multiple former workers over the past decade for alleged non-compete violations. We’ve reached out to the company for comment, and will update if we hear back.
Editor’s note: Updated to add response from the U.S. Chamber of Commerce.
