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The Federal Trade Commission (FTC) today announced that it has issued a final rule banning noncompete clauses. The rule will render the vast majority of current noncompete clauses unenforceable, according to the agency.

“In the final rule, the Commission has determined that it is an unfair method of competition and therefore a violation of Section 5 of the FTC Act, for employers to enter into noncompetes with workers and to enforce certain noncompetes,” the FTC said.

The US Chamber of Commerce said it will sue the FTC in an effort to block the rule, claiming the ban is “a blatant power grab that will undermine American businesses’ ability to remain competitive.”

The FTC proposed the rule in January 2023 and received over 26,000 public comments on its proposal. Over 25,000 of the comments supported the proposed ban, the FTC said. The final rule announced today will take effect 120 days after it is published in the Federal Register, unless opponents of the rule secure a court order blocking it.

The FTC said that “noncompetes are a widespread and often exploitative practice, imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.”

Noncompete clauses currently bind about 30 million workers in the US, the agency said. “Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date,” the FTC said.

FTC: “Noncompete clauses keep wages low”

The only existing noncompetes that won’t be nullified are those for senior executives, who represent less than 0.75 percent of workers, the FTC said. The rule defines senior executives as people earning more than $151,164 a year and who are in policy-making positions.

“The final rule allows existing noncompetes with senior executives to remain in force because this subset of workers is less likely to be subject to the kind of acute, ongoing harms currently being suffered by other workers subject to existing noncompetes and because commenters raised credible concerns about the practical impacts of extinguishing existing noncompetes for senior executives,” the FTC said.

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Federal Trade Commission Chair Lina Khan talks with guests during an event in the Eisenhower Executive Office Building on April 03, 2024

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