How the FTC’s Noncompete Ban Will Affect Bosses and Workers
For decades, noncompete employment agreements have prevented all sorts of workers — doctors, engineers, even hair stylists — from easily switching jobs. That may soon change after the US Federal Trade Commission approved a near-total ban on such provisions. The move was cheered by President Joe Biden but pilloried by business groups like the US Chamber of Commerce, which immediately sued to block the ban. As the legal challenge plays out, employers and employees were trying to make sense of the 570-page rule and gauge its impact.
1. What is the FTC changing about noncompetes and when?
Existing noncompetes that apply to lower- and mid-level workers would be voided after the rule goes into effect in four months. Employers must provide “clear and conspicuous notice” to such workers that the restriction is no longer in effect. Noncompetes for senior executives in a “policymaking position” who earn more than $151,164 a year can remain, but no new ones can be written. The rule doesn’t apply to banks, credit unions or nonprofits, because they aren’t subject to FTC regulation, but hedge funds, private equity firms and other asset managers would be covered.
The FTC made an exception for so-called garden leaves, which are used in finance-industry contracts for employees who are privy to sensitive information, such as knowledge of a money manager’s trading strategies or pending deals. As long as a firm keeps paying a departing employee normal compensation during a required garden leave, such an arrangement wouldn’t be considered a noncompete agreement. “It seems counter-productive — that’s like indentured servitude,” said Kevin Passerini, a partner at law firm Blank Rome. “But the FTC blessed it.”
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"How the FTC’s Noncompete Ban Will Affect Bosses and Workers," by Matthew Boyle was published in Bloomberg on April 25, 2024.