Federal Trade Commission bans nearly all noncompete agreements

The Federal Trade Commission has announced a new ban on noncompete agreements for most U.S. workers, which often restrict them from working within their industry after they leave a job-- sometimes for years.

The new rule makes such agreements unenforceable for all but senior executives. Existing noncompetes would also be negated when the rules take effect in 120 days -- though it's expected to face legal challenges.

"Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned," FTC Chair Lina Khan said in a statement . "The FTC's final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market."

An estimated 30 million U.S. workers -- nearly one in five Americans -- are bound by noncompete agreements. The FTC estimates that the rule will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. It is also expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year.

"Non-competes cross all different industries and professions," Samantha Prince, law professor at Penn State, told KCBS Radio. "So sometimes you think, well, this probably only applies to people that are researchers or people that are really involved in high level proprietary information. But really, they had examples of doctors, IT professionals, we know even examples of hairstylists, security guards, people in fast food have been signing these things because they have no choice. If they want the job, they have to sign it."

Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation, according to the FTC.

The move to ban such agreements has been celebrated by workers and criticized by employers in a legal saga that's likely not done just yet.

"Generally, the argument is that -- what they need is that they need to protect their business interests, which is fair. Certainly that's fair," said Prince. "They don't want somebody leaving and taking what they learned from their employer to a competitor and being able to do the same thing somewhere else."

Noncompete agreements aren't the only way to protect those interests, though.

"There's statutes that are both federal and state level in every state that protect trade secrets and proprietary information like that. There's other contractual tools that they can use, like confidential information or confidentiality type agreements. Those are not banned," said Prince. "So there's other avenues for them. But there's already a court case. One dropped down in Texas at the District Court of Northern District of Texas already. So it's starting."