A new Federal Trade Commission (FTC) rule will ban companies from including non-compete agreements in employee contracts. The rule also makes existing non-compete clauses unenforceable for all but senior executives, and companies are prohibited from entering into new clauses even with those at the upper end of the workforce. This sweeping measure is expected to have a significant impact on the entertainment and media sector, where non-compete clauses are widespread, although they have already been unenforceable in California.
FTC Chairwoman Lina Khan emphasized that non-compete clauses suppress wages, stifle innovation, and hinder economic growth. She estimates that banning non-competes could lead to the creation of over 8,500 new startups annually. The rule is slated to take effect in four months, and the FTC maintains that it will foster competition, boost wages, and encourage business creation.
However, the U.S. Chamber of Commerce intends to challenge the new rule in court. CEO Suzanne P. Clark argues that non-compete agreements are governed by established state laws and should not be subject to a unilateral ban by the FTC.
The only non-competes that will remain valid apply to senior executives earning over $151,164 annually and who hold policy-making positions, according to the FTC.
