On April 23^rd, 2024, the Federal Trade Commission (FTC) issued a ban on noncompete clauses nationwide.^[1] From the FTC’s perspective, the ban fosters competitive behavior that protects the freedom of workers, increases innovation, and fosters new business ideas..^[2] This ban of noncompete agreements applies to every employee, except those who are senior executives.^[3] Senior executives are defined as “policymaking employees earning more than $151,164 per year.”^[4]

            A noncompete agreement is an employment provision that bans a worker at one company from going to work for, or starting, a competing business within a certain time frame after leaving their job.^[5] According to a survey from the Economic Policy Institute, extrapolated data shows that between 27.8% and 46.5% of private-sector workers are subject to noncompete agreements.^[6] This is equivalent to 36 million – 60 million private sector workers in today’s market.^[7]

Prior to this ban, the U.S. labor market had seen steady inequality and stagnant wages even among some of its top workers.^[8] Additionally, an employee’s ability to remain mobile and pursue market opportunities has been on a substantial decline.^[9]  According to the Economic Policy Institute, such clauses have been a significant factor in this decline.^[10] The FTC states that “[n]oncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business.”^[11] 

            The FTC estimated that the ban on noncompete agreements will lead to a 2.7% increase in new businesses per year.^[12] Additionally, this ban will lead to increased wages, as companies will be incentivized to retain their workforce through increased wages rather than noncompete clauses.^[13] The average worker’s income is estimated to rise an average of $524 per year because of the ban.^[14] Once it takes effect, FTC Chair Lina M. Khan estimates that as many as 8,500 new startups will be created.^[15]

            The ban’s impact is predicted to bring “transformative changes to the healthcare industry.”^[16] The ban will allow healthcare professionals to transfer jobs more freely, leading to a more aggressive job market.^[17] This could help lower the costs of healthcare overall, as the ban may help combat healthcare labor shortages.^[18] The theory behind this is that healthcare employees will no longer be restricted to their job due to noncompete agreements, and may then leave their jobs freely, which prevents hospitals and other private healthcare groups from monopolizing local markets.^[19] Long term healthcare quality may see an increase as well, as more surgeons are enticed to leave hospitals and seek better opportunities elsewhere. Job market flexibility is important because it allows healthcare professionals to enter the market freely, which increases the availability of labor, which in turn drives down healthcare costs overall.

            However, the ban may have some caveats. An article by Holland & Knight explains how this increased turnover in the workforce may lead to increased human resources operational costs.^[20] Another concern is that companies may hesitate to fully and properly train new employees, as they know those employees are free to transfer to competitor companies at any time.^[21] This may hinder professional growth of both the individuals and society as a whole.^[22] When applying this principle in the healthcare context, such lack of training and development could greatly hinder medical advancements.^[23]

            The U.S. District Court for the Northern District of Texas blocked the proposed ban on August 20^th, 2024.^[24] Judge Ada E. Brown ruled that the FTC did not have the authority to enact such a broad, arbitrary, and capricious rule.^[25] She credits her decision to the FTC’s lack of evidence justifying enactment of such a “sweeping prohibition.”^[26] The FTC still maintains its position, and appealed the decision on October 18, 2024.^[27] The noncompete ban was supposed to go into effect on September 4, 2024, but presently, the FTC faces continuing legal battles in trying to overcome Judge Brown’s block.^[28]

^[1] https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

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^[3] https://www.hklaw.com/en/insights/publications/2024/04/ftc-bans-non-competes-takeaways-and-action-items-for-healthcare#:~:text=The%20FTC%20final%20rule%20banning,to%20%24194%20billion%20over%20the

^[4] Id.

^[5] https://www.epi.org/publication/noncompete-agreements/

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^[8] https://www.epi.org/publication/noncompete-agreements/

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^[11] https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

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^[13] https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

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^[16] https://www.hklaw.com/en/insights/publications/2024/04/ftc-bans-non-competes-takeaways-and-action-items-for-healthcare#:~:text=The%20FTC%20final%20rule%20banning,to%20%24194%20billion%20over%20the

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^[23] https://www.hklaw.com/en/insights/publications/2024/04/ftc-bans-non-competes-takeaways-and-action-items-for-healthcare#:~:text=The%20FTC%20final%20rule%20banning,to%20%24194%20billion%20over%20the

^[24] https://www.shrm.org/topics-tools/tools/express-requests/ftc-final-rule-banning-noncompetes

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