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New Law Bans Non-Compete Clauses

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Posted by Legal Team On June 14, 2024

In the US, competition is the foundation for building the economy. A recent ruling by the Federal Trade Commission (FTC) aims to make that more likely to happen as it bans non-compete clauses. The final rule aims to make the use of non-compete clauses illegal throughout the country. A San Francisco employment lawyer from The Armstrong Law Firm can help with your case.

What Is a Non-Compete Clause?  

A non-compete clause aims to prevent workers from taking on a new position or job with another company, which is seen as competition, or starting their own business that may be a competitor to the current employer. Non-compete clauses like this make it hard for those who wish to switch jobs to be able to do so without limitations on where they can work.

The New Ruling Makes Non-Competes Illegal

The FTC shares that non-compete clauses harm the country by keeping wages too low and suppressing new ideas. They may also make the American economy less dynamic. In their ruling, issued on April 23, 2024, the FTC’s Chair, Lina M. Khan, shares, “The FTC’s final rule to ban non-compete will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The FTC believes that the result of the ban could be higher wages and more competition, but also the addition of 8,500 new businesses to the economy. It also provides some hard figures on how this type of change will impact businesses, noting that it expects the change to lead to higher wages for workers, with average earnings growing by about $524 per year on average. It may also help to reduce the cost of healthcare for employees, lowering costs by as much as $194 billion in the next 10 years.

The FTC also noted that the non-compete ban will improve innovation in the US. They expect this change to help support the development of 17,000 to 29,000 new patents each year for the next decade.

THE FTC’s final rule states, “Non-competes 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.”

The change is significant and could impact nearly 1 in 5  Americans who already have a contract with their employer in which a non-compete clause is present. That is about 30 million people today.

It is important to note that the FTC did lay out allowable limitations to the use of non-competes by providing insight into strategies to protect company information, including limiting trade secrets from being shared and filing non-disclosure agreements to protect sensitive information.

Individuals who have a non-compete clause in place may find that now is the ideal time to renegotiate their contract or to determine what other stipulations may apply to their legal matter. The key here is recognizing that there are still limitations on what can be shared when switching jobs. Working with an employment attorney could be a critical decision.