The US Federal Trade Commission (FTC) has voted to ban non-compete agreements across the country, saying they are an unfair method of competition, The Verge reports.
Non-competition agreements that attempt to prevent employees from working for or starting competing companies are particularly common in the tech world. Acer, for example, sued its former CEO for allegedly violating its non-compete policy by becoming a consultant to Lenovo.
These changes will force companies to cancel existing non-competition agreements and inform employees about them. Existing non-compete agreements for senior executives may remain in effect, but companies will not be able to enter into new agreements or enforce them.
The Federal Trade Commission defines senior management as employees who make “political” decisions and earn more than $151,164 per year.
The Commission ruled that there are alternatives to non-competition agreements, such as trade secret laws and non-disclosure agreements.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism,” FTC Chair Lina Khan says in a statement.
The Federal Trade Commission first proposed to ban non-compete agreements in January 2023. It is estimated that about 30 million employees have entered into such agreements.
The agency claims that the ban will lead to the creation of more than 8,500 businesses annually, as well as reduce healthcare costs and increase workers’ compensation. The new rule will take effect 120 days after its publication in the Federal Register.
Loading comments …