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FTC Bans Most Noncompete Clauses In Move Affecting 30M Workers

By Nithya Bose in Business News, posted April 24, 2024

The Federal Trade Commission has announced that employers can’t force their employees to not work for rival companies.

This means prohibits most employers from using noncompete clauses.

It affects approximately 30 million workers across various industries, including technology, media, and personal services.

This measure would boost job creation, raise wages, and stimulate competition.

However, it is expected to face legal challenges from companies concerned about protecting confidential information and trade secrets.

The new rule prevents noncompete agreements, which typically restrict employees from joining competitors for a certain period after leaving a company.

This decision, voted in by a 3-to-2 margin, comes after the FTC received over 20,000 public comments since proposing the rule in January 2023.

President Biden: “Workers ought to have the right to choose who they want to work for”

The dissent came from two Republican commissioners who, along with critics like the US Chamber of Commerce, argue that such regulatory actions exceed the FTC’s authority and should be managed at the state level.

FTC Chair Lina M. Khan said: “The F.T.C.’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.”

President Biden said: “Workers ought to have the right to choose who they want to work for.”

While the rule exempts high-earning executives who make at least $151,164 and occupy policymaking positions, it mandates that employers notify all other employees under noncompete agreements that these clauses will soon be void.

This notification must occur within 120 days from the rule’s publication in the Federal Register, which is expected shortly.

However, impending lawsuits could delay its implementation.

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The initiative aligns with a broader FTC strategy under Khan’s leadership to intensively regulate corporate practices.

This strategy also proposes rules to protect online privacy and eliminate hidden consumer fees.

The Department of Labor has also moved to expand eligibility for overtime pay, further demonstrating the current administration's commitment to enhancing worker rights and economic conditions.

This action has sparked a mix of support and concern among various stakeholders.

Unions have voiced strong support, while businesses express apprehension about retaining talent and safeguarding industry secrets.

Critics and proponents are watching closely as the FTC takes a bold step toward reshaping the American labor market.

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