A final rule issued Tuesday by the Federal Trade Commission will prohibit employers across the country from using noncompete agreements in most instances.
The commission said the rule will “promote competition … protecting fundamental freedom of workers to change jobs, increasing innovation and fostering new business formation.”
“Noncompete clauses keep wages low, suppress new ideas and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said in a statement.
The rule is set go into effect 120 days after it is published in the Federal Register, although it may face litigation that could delay implementation.
Approximately 30 million workers, or 18% of Americans, currently are subject to noncompete agreements, according to the FTC.
Under the new rule, existing noncompetes for most workers no longer will be enforceable. Existing noncompetes for senior executives — defined as employees in policy-making positions and earning more than $151,164 annually — can remain in force, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Once the rule is in effect, suspected violations can be reported to the commission’s Bureau of Competition by emailing [email protected].
The rule also may not apply to some nonprofit organizations, although the FTC noted that “not all entities claiming tax-exempt status as nonprofits fall outside the Commission’s jurisdiction.”
The FTC said it expects the rule to result in estimated earnings increasing by $524 per year for the average worker. Additionally, the commission said, healthcare costs will be reduced by up to $194 billion over the next decade.
Proposed rule versus final rule
The commission issued a proposed version of the rule in January 2023 and said it received more than 26,000 comments on it during the subsequent commenting period; more than 25,000 commenters supported the proposal, according to the FTC. LeadingAge and the American Health Care Association / National Center for Assisted Living were among those submitting comments (read more about the concerns they expressed here).
The proposed rule contained a provision that would have required employers to formally rescind noncompete agreements, but that provision is not part of the final rule. “That change will help to streamline compliance,” the commission said.
Instead, under the final rule, employers will be required to notify workers who are bound by existing noncompetes that those agreements will not be enforced. The rule contains model language that employers can use to communicate with workers to comply with this requirement.
FTC notes alternatives
Employers already have ways to protect their investments without having to enforce a noncompete, the FTC said.
“Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information,” according to the commission. “Researchers estimate that over 95% of workers with a noncompete already have an NDA.”
Additionally, “employers that wish to retain employees can compete on the merits for the worker’s labor services by improving wages and working conditions,” the commission said.
The FTC has posted a fact sheet about the rule and a table listing estimated increases in total annual and average worker earnings by state for those interested.
Tuesday, it already was shaping up to be quite a week for senior living and care employers. News of the final rule about noncompete agreements came on the same day that the Labor Department issued a final rule changing the threshold for overtime pay eligibility and a day after the Centers for Medicare & Medicaid Services issued final versions of the Medicaid Access Rule and the first-ever minimum staffing mandate for skilled nursing facilities. Senior living providers expect the nursing home rule to increase their staffing challenges, too, given that they hire caregivers from the same pool of candidates.
