NY Times 4/23/24: F.T.C. Issues Ban on Worker Noncompete Clauses

An excerpt:

“The Federal Trade Commission on Tuesday said employers could no longer, in most cases, stop their employees from going to work for rival companies.

The sweeping action could help create jobs, raise wages and increase competition among businesses, the agency said. But the action is all but certain to be challenged in court by businesses that say they need to protect trade secrets and confidential information…Noncompetes cover about 30 million U.S. workers..”

[It is estimated that] “the decision would lead to the creation of 8,500 start-ups in a year and up to $488 billion in increased wages for workers over the next decade.”

“The rule would become law 120 days after it is published in the Federal Register, which will probably happen in a few days. But legal challenges could delay or block the change…It orders employers to notify nonexecutive employees bound by an existing noncompete that it will no longer be enforceable.”

There is a carve out:   STAT (4/23, Bannow, Subscription Publication) reports: “Crucially for the health care industry, the noncompete ban does not apply to nonprofit companies, as the FTC determined it only has jurisdiction over for-profit companies.” This “means the ban likely won’t apply to most of the country’s hospitals, the majority of which are nonprofit, and some of the country’s biggest health insurers.”

My take: Noncompete agreements at the time of a job offer occur when prospective employees are vulnerable and have limited negotiating power. Established business with market dominance will need to use other ways besides coercion to keep talented employees when noncompete clauses go away.

Related blog post: What’s Wrong with Noncompete Clauses