WASHINGTON — The Federal Trade Commission on Tuesday issued a final rule banning noncompete agreements nationwide, a move aimed at boosting worker freedom, competition, and innovation.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
The FTC estimates the ban could increase average worker earnings by $524 annually, reduce health care costs by up to $194 billion over the next decade, and lead to thousands of additional new businesses and more patents each year.
Noncompete agreements, affecting an estimated 30 million U.S. workers, often prevent employees from taking similar jobs with competitors or starting their own businesses.
Under the new rule, the vast majority of existing noncompetes become unenforceable. Employers cannot enter into new noncompetes and must notify affected workers that existing agreements will no longer be enforced. Noncompetes for a small number of senior executives may remain in force.
The FTC’s action follows a January 2023 proposed rule that drew over 26,000 public comments, overwhelmingly in support of the ban.
The Commission determined that noncompetes constitute an unfair method of competition, violating Section 5 of the FTC Act. The move emphasizes alternatives like trade secret laws and non-disclosure agreements, and encourages employers to compete for workers based on wages and working conditions.
The final rule takes effect 120 days after publication in the Federal Register.