Menu
In a landmark move, the Federal Trade Commission (FTC) has proposed a new rule aimed at invalidating non-compete agreements across the United States. Effective September 24, 2024, the FTC is adopting a comprehensive ban on new non-competes with all workers, including senior executives. The final rule provides that it is an unfair method of competition -- and therefore a violation of Section 5 -- for employers to enter into non-competes with workers.
This initiative has generated significant discussion as it could fundamentally reshape the relationship between employers and employees, with far-reaching implications for the labor market and the economy at large.
Non-compete agreements are contracts that restrict employees from working for competitors or starting a similar business within a certain geographical area and for a specified period after leaving a job. Traditionally, these agreements were used to protect trade secrets and prevent employees from taking proprietary knowledge to competitors. However, in recent years, non-competes have become widespread, often used even for low-wage workers who have little access to sensitive information.
The FTC’s proposed rule would make it illegal for employers to enter into non-compete agreements with workers, including independent contractors. The rule would also require employers to rescind existing non-competes and inform workers that these agreements are no longer in effect. The FTC argues that non-competes are an unfair method of competition, stifling workers' freedom to seek better opportunities and suppressing wages by limiting job mobility.
Proponents of the FTC’s proposal argue that invalidating non-compete agreements could have several positive outcomes. It could increase job mobility, allowing workers to switch jobs more easily and pursue better opportunities. This could be particularly beneficial in industries where non-competes are prevalent, such as technology and healthcare. Moreover, it could boost wages by increasing competition among employers for workers. Studies have shown that non-competes can lead to lower wages and reduced job satisfaction, so their removal could improve overall labor market conditions.
However, the proposal is not without its critics. Some argue that non-competes are necessary to protect businesses, particularly startups and small companies, that could be vulnerable if key employees leave to join or start competing firms. Critics also contend that the rule might face legal challenges, particularly from businesses that argue it oversteps the FTC’s authority.
For existing non-competes, the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force. Existing non-competes with workers other than senior executives are not enforceable after the effective date. “Senior executive” refers to workers earning more than $151,164 who are in a “policymaking” position. You can read the Final Rule here.
As the FTC moves forward with this proposal, it will likely face significant debate and scrutiny. The outcome will have profound implications for both workers and employers across the country. If implemented, the rule could herald a new era of labor rights, enhancing worker mobility and potentially reshaping the American labor market. However, the balancing act between protecting business interests and ensuring fair labor practices will remain a central theme in the discussions to come.
Keep an eye on our Events page, located at: https://www.wagnerlegalmn.com/events/ for free upcoming seminars about business owner updates.
If you’d like to meet with an attorney to explore ways to ensure compliance business owner laws, contact us to get started.
Want to stay informed? Subscribe to our quarterly newsletter for updates.
© 2024 Wagner Oehler, Ltd
Legal Disclaimer | Privacy Policy
Law Firm Website Design by The Modern Firm