On August 20, a district court issued an order stopping the FTC from enforcing [a ban on employment noncompetes]. The FTC is considering an appeal. The decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.
Rule Summary
Under the final Noncompete Rule, the FTC adopts a comprehensive ban on new noncompetes with all workers, including senior executives.
The final rule provides that it is an unfair method of competition—and therefore a violation of Section 5—for employers to enter into noncompetes with workers.
For existing noncompetes, the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing noncompetes can remain in force. Existing noncompetes with workers other than senior executives are not enforceable after the effective date.
The FTC estimates that banning noncompetes will mean:
More innovation: an average of 17,000-29,000 more patents per year
More startups: a 2.7% increase in new [business] formation – that’s 8,500+ new businesses per year
Higher earnings: typical workers earn USD524 more per year
An estimated 18% of US workers are covered by noncompetes.
How will a noncompete ban help American workers?
The FTC estimates that banning noncompetes will result in:
Reduced health care costs: $74-194 billion in reduced spending on physician services over the next decade.
New business formation: 2.7% increase in the rate of new firm formation, resulting in an additional 8,500 new businesses created each year.
Rise in innovation: an average of 17,000-29,000 more patents each year.
This reflects an estimated increase of about 3,000 to 5,000 new patents in the first year noncompetes are banned, rising to about 30,000-53,000 in the tenth year.
This represents an estimated increase of 11-19% annually over a ten-year period.
Higher worker earnings: $400-$488 billion in increased wages for workers over the next decade.
The average worker’s earnings will rise an estimated extra $524 per year.
EDITOR’S NOTE: Noncompete (restraint of trade) enforceability varies from State to State, ranging from unenforceable in California, to very enforceable in Florida. In New Zealand they seem to be moderately enforceable. Domestic noncompete enforcements we have reported on include:
Davis Trading v Uelese (Warehouse supervisor)
McCormick-Wilson v Dowler (Hairdresser)
Bananaworks v Shi and Ors (IT/software)
Discovery v O’Brien (Newsreader. Opinion piece for NBR)
Cookright v Hill and Anor (Commercial cleaner, ongoing case)
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