FTC Bans Noncompete Agreements Nationwide in Sweeping New Ruling
n a landmark ruling, the FTC has voted to ban noncompete agreements. This represents a major shift in federal policy that will have significant implications for startup founders, investors, and the broader business community. The key elements of the FTC's final rule are:
A comprehensive ban on employers entering into new noncompete agreements with any workers, including senior executives.
For existing noncompetes entered into before the rule's effective date: Noncompetes with senior executives (earning over $151,164 and in a policy-making role) can remain in force. Noncompetes with all other workers will no longer be enforceable after the rule takes effect.
The FTC estimates this ban on noncompetes will deliver substantial economic benefits, including:
$74-194 billion in reduced healthcare costs over the next decade
A 2.7% increase in new business formation, adding 8,500 new companies per year
17,000-29,000 more patents issued annually, a rise of 11-19%
$400-$488 billion in increased worker wages over the next 10 years, averaging $524 more per worker per year
This landmark decision is a major win for startup founders, employees, and the broader innovation ecosystem. By eliminating noncompete agreements, the FTC is aiming to promote competition, worker mobility, and entrepreneurship - all critical drivers of economic growth.
Notably, Pennsylvania has historically viewed noncompete agreements as restraints on trade and has required them to be reasonably limited in duration and geographic scope to be enforceable. The courts have also held that noncompetes entered into after the start of employment must be supported by adequate new consideration beyond just continued employment.
The FTC's action should help alleviate these concerns and empower more people to pursue their entrepreneurial pursuits. While the legal battles ahead may create uncertainty, this rule represents a significant shift that startup leaders should closely monitor. The potential benefits in terms of talent retention, new business formation, and innovation could be substantial.
Read more from the FTC about their recent ruling - https://www.ftc.gov/legal-library/browse/rules/noncompete-rule