FTC banned noncompete contracts nationwide

[Andy Nguyen]

This is a big news as many employers, specially financial firms, tech firms use noncompete to prevents workers from joining competitors.

FTC Announces Rule Banning Noncompetes

Today, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamen

www.ftc.gov

Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation. An estimated 30 million workers—nearly one in five Americans—are subject to a noncompete.

Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives - who represent less than 0.75% of workers - can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

 

[weab]

wow

 

[Andy Nguyen]

The U.S. Chamber of Commerce vowed to sue the F.T.C. to block the proposal, calling it “an unlawful power grab” in a statement shortly after the decision. Employers have argued that noncompetes help protect trade secrets and other confidential information.

The rule would become law 120 days after it is published in the Federal Register, which will probably happen in a few days. But legal challenges could delay or block the change.

Noncompete clauses affecting senior executives can remain in effect, the commission said, but employers are banned from attempting to impose new noncompetes on any employee.

Studies have shown that noncompetes suppress wages because switching jobs is the most efficient way workers can increase how much they make.

“This would be an immediate shock that would allow millions of workers to be free to take a better job in their industry,” said Evan Starr, an economics professor at the University of Maryland. “I would expect the labor market to increase almost overnight.”

F.T.C. Issues Ban on Worker Noncompete Clauses

The rule would prohibit companies from limiting their employees’ ability to work for rivals, a change that could increase competition and boost wages.

www.nytimes.com

 

[MikeLawrence]

Did anyone see this coming?

This is ironic given the current lawsuit between Jane Street and their two former traders. JS's nonexistent noncompetes were a bit rouge. I wonder if lawsuits will now abound.

Edit: I posted the above as @Andy Nguyen's update came in. This makes things even more interesting. I expect a very interesting take from Matt Levine.

 

[Andy Nguyen]

For Traders, the FTC Ban on Non-Compete Clauses Comes With Big Catches

Wall Street traders and money managers could be in for disappointment if they’re hoping a new US ban on non-compete clauses will clear the way for them to spring into the arms of higher-paying competitors.

www.bloomberg.com

As long as a firm keeps paying a departing employee normal wages during a required garden leave, it isn’t a non-compete clause, according to a copy of the rule published by the FTC.

That’s because “the worker continues to be employed, even though the worker’s job duties or access to colleagues or the workplace may be significantly or entirely curtailed,” according to the rule.

To avoid being deemed a non-compete clause, the FTC’s rule says employees must get their “same total annual compensation and benefits on a pro rata basis.”