WASHINGTON D.C. (CelebrityAccess) — On Tuesday, the Federal Trade Commission issued a new ruling that imposed an national ban on non-compete clauses in employment contracts, making it easier for employees to jump ship and take up with rival companies.
The new rule will change the hiring process for the entertainment industry, where such clauses are a common feature of employment contracts outside of California, where the practice has already been restricted.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Under the terms of the FTC’s new rule, existing noncompetes for most workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives 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.
Additionally, 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.
According to the FTC, the agency anticipates that the ban on non-competes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade.
