Federal Trade Commission Votes to Ban Non-Compete Clauses

Non-compete agreement

Federal Trade Commission Votes to Ban Non-Compete Clauses

The Federal Trade Commission (FTC) has issued a final rule on banning non-compete clauses in employment contracts after finding the practice unfair and violating Section 5 of the FTC Act. Non-compete clauses are typically included in employment contracts and severance agreements and prevent an employee from working for a competitor or starting a similar business, even when terminated.

The rule also invalidates non-compete clauses in existing contracts, except for senior executives earning more than $151,164 annually in policy-making positions. However, employers are prohibited from including non-compete clauses in any new or future employment contracts for senior executives. Employers must also notify all other workers currently bound by existing non-competes that no enforcement action will be taken.

Non-compete clauses often force workers to stay in unwanted positions or suffer significant consequences, including being forced into a lower-paying field, relocating, or leaving the workforce altogether. According to the FTC, an estimated 30 million workers are subject to a non-compete clause in employment contracts.

The clause allowed employers to seek legal action against former employees for violating the terms of the contract. The FTC’s issuing of the final rule banning non-compete clauses is a measure toward protecting competition and innovation, a major victory for workers and small business owners alike. The rule also promotes entrepreneurship and innovation by allowing employees to start their businesses or work for competitors without facing legal consequences.

The FTC estimates the final rule will generate over 8,500 new businesses each year, increase wages, lower up to $194 billion in healthcare costs, and drive new innovation with an expected increase of up to 29,000 new patents each year over the next decade.

The FTC issued a proposed rule in January 2023, opening a mandatory 90-day public comment period. The agency received over 26,000 comments, with over 25,000 in support of the proposed ban. All comments were carefully reviewed and utilized to inform the FTC’s final rulemaking process and adjust the proposal based on public input.

According to the Commission, employers have several alternatives to non-compete clauses to continue protecting their investments, such as non-disclosure agreements (NDA) and trade secret laws, which insulate proprietary and other sensitive information. An estimated 95 percent of workers with non-compete clauses in their employment contract or severance agreement also have an established NDA preventing them from disclosing company information.

Revise Your Employment Contract at Buchanan Law Firm, LLC

While the final rule applies to most workers, there are some exceptions. If you have a non-compete clause and are uncertain how the rule affects you, Buchanan Law Firm, LLC offers strategy sessions for workers with questions or concerns about the terms of their employment.

Sessions are a one-hour flat-rate consultation with one of our employment lawyers. They review your employment situation, contracts, and any other job-related documents, discuss your options, and discuss how the new FTC rule and other employment laws may impact you.

Buchanan Law Firm, LLC has over 20 years of experience providing workers throughout New Mexico with comprehensive legal guidance and representation in all employment law matters.

Our Albuquerque Employment Lawyers at Buchanan Law Firm, LLC Assist Workers With Employment Contracts and Severance Agreements

If you have questions regarding your employment contracts, our experienced Albuquerque employment lawyers at Buchanan Law Firm, LLC are happy to review the information and discuss your options. Call today at 505-900-3559 or contact us online to schedule a free consultation. Located in Albuquerque, New Mexico, we serve clients in Santa Fe and the surrounding areas

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