In a monumental move, the Federal Trade Commission (FTC) has ushered in a new era by adopting a comprehensive ban on new noncompete agreements with all workers, including senior executives. This final Noncompete Rule marks a significant shift in labor practices, aiming to foster a more competitive and innovative landscape while enhancing worker rights and economic opportunities.
Under the finalized rule, it is deemed an unfair method of competition for employers to enter into noncompete agreements with workers. This bold stance reflects a commitment to leveling the playing field and empowering employees to explore new avenues without the constraints of restrictive covenants.
One notable aspect of the final rule is its differentiated approach toward existing noncompetes, particularly for senior executives. While existing noncompetes can remain in force for senior executives, they will not be enforceable for other workers after the regulation’s effective date. The definition of “senior executive” includes individuals earning more than $151,164 who hold policy-making positions, representing fewer than 1% of workers under the final rule.
This rule change goes beyond just labor relations. The FTC expects several benefits from banning noncompetes, like lower healthcare costs, more new businesses, and increased innovation.
First, the ban is expected to save a lot on healthcare costs, with estimates suggesting $74 to $194 billion in reduced spending on physician services over the next decade. By freeing workers from the shackles of noncompetes, individuals will have greater flexibility to pursue career opportunities that align with their aspirations, potentially leading to more efficient healthcare utilization and cost savings.
The ban is expected to encourage more people to start their own businesses, with a predicted 2.7% increase in new firms. This means 8,500 extra businesses each year, leading to more innovation and economic growth. By making the job market more flexible, the rule lets people use their skills to create new businesses, which boosts the economy and creates more jobs.
Banning noncompetes is anticipated to boost innovation, leading to a new era of technological advancement and progress. The FTC estimates an average of 17,000 to 29,000 more patents each year, representing a substantial uptick in inventive activity. This exponential rise in patent filings is projected to accelerate over time, culminating in an estimated increase of about 11% to 19% annually over a ten-year period.
Furthermore, the ban is expected to increase worker earnings, with an estimated $400 to $488 billion in increased wages over the next decade.
Looking ahead, the final rule marks a significant change in how work is approached, prioritizing fairness, competition, and innovation. By removing obstacles to job mobility and entrepreneurship, the FTC has created the conditions for a more vibrant and equitable economy, empowering individuals to pursue their ambitions and reach their fullest potential.
The next steps are clear: the final rule will become effective 120 days after publication in the Federal Register. As everyone gets ready for this big change, one thing is certain – noncompetes are going away, opening up new opportunities and prosperity for workers and businesses.
Tricia Meyer is a serial entrepreneur, business lawyer and mom of 6! Tricia is the Founder + Managing Attorney at business law firm, Meyer Law and Co-Founder at The Clever Baby. At Meyer Law, Tricia has helped thousands of companies from startups on Shark Tank to growing companies on the Inc.500 list to some of the largest, well-known companies in the world! The Clever Baby recently launched its first product Jet – a patented, innovative teether and dispenser all-in-one, and is committed to developing clever products for parents and creating magical moments for babies and kids. Tricia is passionate about entrepreneurship and has mentored thousands of companies at incubators and accelerators across the United States at 1871, TechStars, WeWork Labs, and more!
