US Federal Trade Commission Prohibits Non-Compete Clauses

In a significant move, the Federal Trade Commission has introduced a ruling that prohibits the inclusion of non-compete clauses in employment contracts. According to FTC Chair Lina M. Khan, "The elimination of non-compete clauses will have a positive impact on the economy by fostering innovation, increasing wages, and allowing for the creation of over 8,500 new startups annually." The decision was made with a 3-2 vote, with two Republican commissioners dissenting. The ruling asserts that existing trade secret laws and non-disclosure agreements provide sufficient protection for companies' sensitive information, rendering non-compete clauses unnecessary. While the new rule does not immediately invalidate existing non-compete agreements for high-ranking executives earning over $150,000, it does prevent companies from creating or enforcing new ones. The FTC received over 26,000 public comments on the proposed rule, with the vast majority supporting the ban. Approximately 18% of US workers are currently bound by non-compete clauses, which the FTC describes as "a pervasive and often exploitative practice that restricts workers' ability to change jobs or start new businesses."