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Washington D.C. – In a landmark decision with far-reaching implications for digital advertising, the Federal Trade Commission (FTC) has finalized a sweeping ban on non-compete agreements nationwide. The ruling, announced Thursday, aims too foster competition and increase worker earnings by prohibiting employers from restricting employees’ ability to seek work elsewhere.
The FTC estimates the new rule will increase wages by $300 billion per year and enable approximately 30 million Americans to have more freedom to change jobs. Currently, roughly one in five U.S. workers – around 30 million people – are bound by non-compete clauses, according to the agency.
“Non-compete clauses keep wages low, suppress new ideas, and limit competition,” FTC Chair Lina Khan stated in a press release. “today’s rule will ensure that Americans have the freedom to pursue better opportunities and earn what they deserve.”
The rule broadly prohibits employers from entering into new non-compete agreements with workers. It also invalidates existing non-compete agreements, with some exceptions for senior executives. Specifically, the ban applies to all workers, including autonomous contractors, but excludes senior executives – defined as those making at least $300,000 per year who are in policy-making positions.
The FTC’s action comes after years of growing scrutiny of non-compete agreements, which critics argue stifle innovation and limit economic mobility. Proponents of the agreements, typically employers, have maintained that they are necessary to protect trade secrets and investments in employee training.
The rule is expected to face legal challenges from business groups who argue the FTC lacks the authority to issue such a broad ban. The U.S. Chamber of Commerce has already signaled its intent to sue, claiming the FTC overstepped its authority. The Chamber argues that non-competes are a legitimate business tool and that the rule will harm innovation and investment.
The FTC’s authority to enact this rule stems from the FTC Act, which prohibits unfair methods of competition. The agency argues that non-compete clauses constitute an unfair method of competition becuase they harm workers and limit competition in the labor market.
The rule will take effect 120 days after publication in the Federal Register. The FTC has provided guidance for employers and employees on its website,outlining the details of the new rule and its implications.
The debate surrounding non-compete agreements has intensified in recent years, with several states – including California, North dakota, and Oklahoma – already having laws that significantly restrict or ban their use.