Retention rethink | FTC set to vote on controversial noncompete clause ban with NCAs costing workers $3bn per year

FTC set to vote on controversial noncompete clause ban with NCAs costing workers $3bn per year

On Tuesday, April 23 the Federal Trade Commission (FTC) will vote on a proposed rule that would ban employers from including noncompete clauses in employment contracts.

The open commission meeting will take place at 2.00 pm Eastern Time, in which the fate of the rule - which has been pending since January 2023 – will be decided. 

The rule would not just apply to future contracts but would also be applied retroactively, meaning employers would need to withdraw all historic noncompete agreements and notify employees they were being rescinded.

If successful, the final rule would need to be published in the Federal Register, going into effect 60 days after this date. Companies would then have 180 days to establish compliance and rescind all noncompete agreements.

Noncompete agreements are clauses included in contracts between a worker and employer that prohibit the worker from accepting a job with another employer, looking for a job, or starting their own business for a given period of time after their employment with the company ends.

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Such agreements were historically included only in executive-level contracts to protect trade secrets, but studies show they are now widespread across corporate America, with an estimated 18% of U.S. workers bound by noncompete clauses, and 98% of private employers requiring executives and managers to sign noncompetes as a condition of employment.

The FTC has previously estimated that a ban on noncompete clauses could increase wages by nearly $300billion each year and increase employment opportunities for 30 million US workers.

The rule, in its current form, has drawn a huge amount of feedback, both positive and negative. The FTC has received more than 26,000 comments on the rule since announcing the proposal last year, alongside drawing statements from major bodies.

Some pro-labor institutions and anti-trust bodies have hailed the rule, including the Antitrust Division of the United States Department Of Justice, which states it “agrees with the FTC’s assertion that non-compete clauses harm competition in labor markets” and “supports the FTC’s rulemaking effort to promote labor market competition by restricting anticompetitive non-compete clauses.”

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