Employment prospects just got brighter for the estimated 30 million U.S. workers who are currently bound by so-called noncompete agreements. U.S. regulators on Tuesday banned nearly all noncompetes, which restrict about 1 in 5 employees around the U.S.
Here are five things to know about what the Federal Trade Commission rule means for workers.
What the rule states
- Noncompetes are an unfair means of competition, and so employers are prohibited from entering into any new such arrangements with workers. Employers will no longer be able to enforce existing noncompetes, other than with senior executives, which the rule defines as someone earning more than $151,164 per year and in a "policy-making position."
- Employers are required to notify workers with noncompetes that they are no longer enforceable.
- Noncompetes are allowed between the seller and buyer of a business.
When the rule takes effect
The rule takes effect 120 days from the time it is published in the Federal Register, the official daily publication for rules, proposed rules, and notices of federal agencies and organizations, as well as executive orders. The FTC submits the rule, follows the procedures and waits for publication to happen, with the exact timing up to the Federal Register.
The rationale behind the FTC's choice
- Noncompete agreements have the potential to limit employees from seeking better job opportunities or establishing their own ventures.
- Noncompetes frequently pressure employees into remaining in positions they wish to depart, and in some cases, compel them to exit a profession or relocate.
- Noncompetes can hinder employees from accepting higher-paying positions and may even restrict the wages of employees not directly bound by them.
- Out of over 26,000 comments received by the FTC, more than 25,000 favored the prohibition of noncompetes.
Why numerous healthcare professionals might be excluded
Nonprofit entities typically fall beyond the FTC's jurisdiction, potentially exempting many healthcare provider organizations in the country from the noncompete ban.
According to the American Medical Association, up to 45% of physicians are subject to noncompete agreements. The AMA has expressed its support for the prohibition of most noncompetes.
What comes next
Despite the majority vote against the implementation of the rule, the two Republican FTC commissioners within the five-member panel contended that the agency lacks the jurisdiction to outlaw noncompetes. This argument is also being put forth by the U.S. Chamber of Commerce, which initiated legal action against the FTC on Wednesday.
The legal disputes are perceived as a substantial challenge, raising the possibility of the case reaching the U.S. Supreme Court, where conservative justices hold the majority.
