R.I.P. non-compete agreements?

The Federal Trade Commission (FTC) chaired by Lina M. Khan, had announced in January of 2023, new proposed rules banning non-compete agreements or non-competes. As of July 2023, the FTC has yet to issue a final rule. 28% to 47% of private-sector workers are bounded by non-competes per the Economic Policy Institute. Studies and experts found non-competes to deprive workers of wage growth, growing companies of talent, and the economy of innovation. Non-competes are also prevalent in professions and industries that employ many Asian Americans.

Update: On April 23, 2024, the Federal Trade Commission issued a final rule banning non-competes nationwide. The final rule’s expected effective date is September 4, 2024. Under the FTC’s new rule, existing non-competes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing non-competes for senior executives – who represent less than 0.75% of workers – can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new non-competes, even if they involve senior executives.

You may have likely come across or even signed a non-compete when you started a new job or sold a business. An estimated 36 million – 60 million of Americans are bounded by non-competes per the Economic Policy Institute. Not only are non-competes used in highly paid professions like doctors, but they are also used on sandwich makers and hairstylists. Non-competes are also prevalent in professions and industries that employ many Asian Americans.

The Federal Trade Commission (FTC) chaired by Lina M. Khan, had announced in January of 2023, new proposed rules banning non-compete agreements or non-competes. The FTC extended their comment period to April 19, 2023, where they received nearly 27,000 comments. However as of July 2023, the FTC has yet to issue a final rule.

FTC’s proposal

• Requires employers to withdraw existing non-competes and to inform workers that they no longer apply
• Makes it illegal for an employer to enter into a non-compete with a worker or to try to do so
• Makes it illegal for an employer to suggest that a worker is bound by a non-compete, when they are not
• Covers employees, independent contractors, interns, volunteers and other workers

Positive Impact from a national ban

• Better for workers, companies, and the U.S. economy
• Estimated increase of $300 billion in annual wages for workers (or about a $2,000 increase per worker)

Employer use of non-competes are ubiquitous

• Women and women of color are disproportionately impacted by non-competes
• 28% to 47% of private-sector workers are bounded by non-competes
• 62% of CEOs worked under a non-compete between 1992 and 2014
• 53% of workers who are subject to non-compete are hourly workers
• 62% of workplaces subject workers with a college degree or higher to non-competes

Prevalent in professions and industries that employ many Asian Americans

• 45% of physicians worked under a non-compete clause in 2007
• 43% electrical and electronic engineers signed a non-compete clause in 2011
• 58% of workplaces in Finance, insurance, and real estate subject workers to non-competes
• 71% of workplaces in Business services subject workers to non-competes
• 54% of workplaces in Information subject workers to non-competes

States are also banning or limiting non-competes

States are also banning, limiting, or changing non-competes. California, North Dakota, Oklahoma, and Washington D.C. have banned non-competes except with a few exceptions. Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, and Washington state prohibit non-competes below a certain income threshold. Hawaii limits non-competes to legitimate business purposes.

Helpful Resources

F.Q.A. on non-compete agreements (National Employment Law Project)

The Freedom to Leave: Curbing Noncompete Agreements to Protect Workers and Support Entrepreneurship (The Center for American Progress)