The U.S. Federal Trade Commission has officially banned all future non-compete agreements, citing concerns about stifling innovation and harming workers. The decision comes after receiving 26,000 public comments in favor of a ban. The U.S. Chamber of Commerce, however, has stated its intention to sue the FTC over the regulation, claiming it sets a dangerous precedent for government involvement in business affairs.
The rule change will affect an estimated 30 million American workers who are currently covered by non-compete clauses. The FTC predicts that employees will, on average, earn an additional $524 per year as a result of the new rules. In addition to banning future non-compete agreements, the rule will also strike down existing agreements, with the exception of senior executives who make up less than 1% of the workforce.
The final rule from the FTC is set to take effect 120 days after being published in the Federal Register, and it will supersede existing state laws on non-compete agreements. Washington state, for example, already has limits in place, allowing non-compete agreements only for employees earning above a certain threshold and capping the length of the clauses at 18 months. Microsoft had previously announced its decision to remove non-compete clauses from its U.S. employment agreements, except for senior leaders.
In response to the ban on non-compete agreements, Microsoft stated that it believes American innovation thrives when individuals have the freedom to pursue their desired career paths. Meanwhile, Amazon, another major tech company based in Seattle, has been known to sue former employees for allegedly violating non-compete agreements. The impact of the FTC’s decision on these and other tech companies remains to be seen, but it marks a significant shift in the employment landscape in the United States.
