Employment prospects just got brighter for the estimated 30 million U.S. workers who are currently bound by so-called noncompete agreements. U.S. regulators on Tuesday banned nearly all noncompetes, which restrict about 1 in 5 employees around the U.S.
Here are five things to know about what the Federal Trade Commission rule means for workers.
What the rule states
- Noncompetes are an unfair means of competition, and so employers are prohibited from entering into any new such arrangements with workers. Employers will no longer be able to enforce existing noncompetes, other than with senior executives, which the rule defines as someone earning more than $151,164 per year and in a “policy-making position.”
- Employers are required to notify workers with noncompetes that they are no longer enforceable.
- Noncompetes are allowed between the seller and buyer of a business.
When the rule takes effect
The rule takes effect 120 days from the time it is published in the Federal Register, the official daily publication for rules, proposed rules, and notices of federal agencies and organizations, as well as executive orders. The FTC submits the rule, follows the procedures and waits for publication to happen, with the exact timing up to the Federal Register.
The reasons behind the FTC’s decision
- Noncompete agreements can restrict workers from leaving for a better job or starting their own business.
- Noncompetes often effectively coerce workers into staying in jobs they want to leave, and even force them to leave a profession or relocate.
- Noncompetes can prevent workers from accepting higher-paying jobs, and even curtail the pay of workers not subject to them directly.
- Of the more than 26,000 comments received by the FTC, more than 25,000 supported banning noncompetes.
Why many health care workers may be exempt
Nonprofits typically fall outside the FTC’s jurisdiction, meaning the noncompete ban may not apply to many of the nation’s health care provider organizations.
As many as 45% of physicians are restricted by noncompetes, according to the American Medical Association, which has voiced support for banning most of them.
What happens next
In voting against passage of the rule, the two Republican FTC commissioners on the five-person panel argued that the agency lacks the authority to ban noncompetes. The same case is being made by the U.S. Chamber of Commerce, which filed suit against the FTC on Wednesday.
The legal challenges are viewed as a credible threat, meaning a case could end up in the U.S. Supreme Court, where conservative justices have a majority.
