New Ban on Non-Compete Clauses and What it Means For Workers

Posted on May 21, 2024 in Employment Law

Non-compete clauses used to stifle workers’ abilities to change careers, begin new initiatives, and contribute to the workforce will now shift the challenge of retaining an employee to the employer. One of the goals in banning non-compete clauses is to provide employees with better wages and working conditions for employers to retain their services. 

While this ban will benefit many workers, others do not fall under the Federal Trade Commission’s (FTC) regulation. As San Diego employment law shifts, we strive to answer the challenging questions about this new ban, who it will impact, and what this means for employees.

FTC Opinion on Non-Compete Clauses

The FTC determined that non-compete clauses adversely impact competition in labor markets. They also stressed these clauses tend to result in inefficiencies between employers and employees. The FTC issued its final rule, stating these key determinants in banning non-competes in the United States. 

• Employees should retain the protected freedom to seek other employment.
• The ban should increase innovative ideas and promote approximately 8500 new business formations.
• Wages will improve as employee incentives increase, potentially increasing wages for each worker by approximately $524 annually.
• Healthcare costs are predicted to be lower by $194 billion over the next decade.
• The number of patents is expected to increase yearly to an estimated average of 17,000-29,000 new patents and sustain this annual increase over the coming ten years.

The ban on non-compete clauses allows mobility in the workforce, preventing forced movement by an employee to a lower-paying job, forced relocation to retain a position, or forced movement from the workforce. Employers must notify employees bound by non-competes following this modeled language, stating that they can no longer enforce these clauses. However, non-compete clauses will still be allowed between sellers and buyers of businesses.

Employees Falling Outside of the Non-Compete Clause Ban

Many healthcare workers employed by nonprofits will fall outside the FTC jurisdiction and ruling. According to the American Medical Association (AMA), approximately 37%-45% of physicians will not benefit from this ban, limiting their ability to advance in their careers or restricting where they may practice.

As a result, underserved communities are impacted by healthcare workers’ inability to serve in these communities based on these clauses. Non-compete clauses in place for senior business executives may also remain valid. And new non-compete clauses will be prohibited and cannot be enforced.

Non-Compete Alternatives for Employers

Employers concerned with protecting their investments and businesses may still utilize trade secret laws and non-disclosure agreements. These alternatives will continue to safeguard sensitive information. Encouraging employees to stay with a company may now require employers to improve an employee’s work environment, providing better avenues to achievement. 

Reporting Suspected Non-Compete Violations

This rule will take effect 120 days from its publication. After this time, suspected violations may be reported to the Bureau of Competition by email at noncompete@ftc.gov. Document potential 

violations to support your claim. This rule will likely be challenged. 

Employees who do not receive a notice of the ban on non-competes or who may question their rights under the new rule may choose to receive further guidance. As backlash from corporations and businesses presents challenges to the new rule, the team at Walker Law will continue supporting clients’ rights to advance in the workplace.