FTC’s Ban on Non-Compete Agreements: A Win for American Workers and Innovation

Non-compete agreements have long been a requirement for certain jobs in the United States of America. Previously, the use of these agreements was limited to top executives, but over the years, the use of these agreements has expanded to include all kinds of workers. A non-compete agreement prevents a worker from leaving their employer and working for a competitor or starting a competing business. Some non-compete agreements even call out the exact employers an employee cannot work with after leaving their current employer. For people who find themselves being required to sign a non-compete agreement as a requirement for employment, there are usually only two options: accept the (one-sided) agreement or decline the job. The current decision by the Federal Trade Commission (FTC) to ban employers from enforcing non-compete agreements marks a huge win for American workers and innovation.

On April 23, 2024, the FTC voted (3-2) to ban for-profit employers from requiring workers to sign non-compete agreements and issued a final rule. According to the FTC, around 30 million individuals are bound by non-compete agreements in their current jobs. The FTC recognizes that such agreements restrict employees from freely changing jobs. The agency acknowledges that non-compete agreements force workers to remain in low-paying jobs, hinder innovation, and block entrepreneurship. Indeed, non-compete agreements significantly limit job mobility, career opportunities, and bargaining power. These agreements also hinder innovation by preventing workers from sharing their skills and knowledge with others in the industry. Put simply, non-compete agreements create a power imbalance between employers and employees, with employers having significant control over employees.

Benefits of a Ban on Non-Compete Agreements

The FTC’s ban on non-compete agreements will make things easier for employees who want to change employers and fear retaliation from their former employers. Eliminating non-compete agreements will allow employees to freely explore a wide range of employment opportunities without worrying that their former employers will take legal action against them, such as filing a breach of contract claim, which can result in an employee being required to pay substantial damages. A ban on non-compete agreements can enable people to leverage their skills and experience, thus leading to improved job satisfaction and financial stability.

Banning non-compete agreements will foster innovation. Without these agreements, employees who want to switch to entrepreneurs can enter markets more freely. This is not only beneficial to workers. Encouraging employees to showcase their talents and skills across different industries can accelerate economic growth.  

Additionally, a ban on non-compete agreements can improve employees’ bargaining power. Non-compete agreements limit workers’ ability to negotiate for better pay by constraining their ability to seek alternative jobs. Because they are barred from seeking higher-paying positions with competitors, many employees are forced to settle for less than they deserve. Banning non-compete agreements will allow employees to freely take other higher-paying jobs if their current employers are unwilling to raise their pay. A ban will enable many people to achieve financial stability either through their current jobs or higher-paying positions with competitors.

Had the US Chamber of Commerce and other business groups not filed a lawsuit challenging the FTC’s ban on non-compete agreements, we would be waiting for the rule to take effect in August. Now, it is unclear if and when the rule will go into effect. We will follow the development of the FTC’s rule closely and keep you updated.

Contact a California Employment Lawyer

If you have questions or need more information on the FTC’s rule, you can speak to a California employment lawyer.