Yesterday, the Federal Trade Commission (FTC) issued a final rule to ban noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.
Noncompetes are a widespread practice imposing contractual conditions that prevent workers from taking a new job or starting a new business.
Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.
An estimated 30 million workers — nearly one in five Americans — are subject to a noncompete. Before the final rule, C-suite execs, fast-food workers, and yoga instructors, fell under these agreements, to name a few.
FTC Chair Lina M. Khan said, “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 the market.”
The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year.
It’s also expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year.
And it’s expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years.
In a swift recourse, the Chamber of Commerce vowed to sue the FTC to block the rule, claiming that the agency doesn’t have the authority to regulate competition and that the rule “opens up a Pandora’s box” for the FTC to meddle with other aspects of the economy.
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