New Rule Banning Non-Competes and How It Could Impact the Job Market

Nearly 30 million workers, or 1 in 5 Americans, are subject to a non-compete. In some shape or form, non-competes impact the job market as you look to transition from one employer to another. On April 23, 2024, the Federal Trade Commission (FTC) issued the final rule banning non-competes. What does this rule mean for your career?

What’s a Non-Compete?

A non-compete is a contract that prevents you from working for another employer in the same field or starting a competing business once your employment ends. From a business perspective, a non-compete protects the company’s trade secrets and proprietary information anywhere from 6 months to 2 years after you leave your job. The actual length of time can depend on local laws and the industry.

How the Final Rule Affects Non-Competes

On April 23, 2024, the FTC concluded that non-competes restrain competition, depreciate wages, and limit job opportunities. The final rule ban would apply to all workers: employers, contractors, and interns. The ban has been challenged by industry groups, which could create modifications and delay its proposed implementation on September 4, 2024.

Pro Tip: Ready to create opportunities in a non-traditional way? Here’s what you should know about the “new-collar” workforce.

Exceptions to this Rule

The final rule does not affect the following industries: nonprofits, banks, savings and loan institutions, federal credit unions, common carriers, air carriers, and businesses that are covered by the Packers and Stockyards Act. Senior executives with an annual income of $151,164 with policy-making authority for an organization are also exempt.

Pro Tip: The senior executive exception only applies to existing non-competes before the effective date.

How the “Final Rule” Affects You

Moving forward, you may not be required to sign a non-compete, and old non-competes may not be enforceable. “Usually agreements have a severability clause that keeps the rest of the agreement intact if one provision becomes unenforceable, but not every agreement has such a clause,” says Linda Clark Ashar, J.D.

Pro Tip: Have your attorney or paralegal review agreements containing non-compete clauses. To grow your knowledge in legal documentation, learn more about the top paralegal certifications.

What This Means for the Job Market

The FTC estimates the final rule banning non-competes will spark new business formation by 2.7% each year, with 8,500 new businesses being created. Expect $524 in higher earnings per year and $194 billion less in healthcare costs in the next decade. Innovation is expected to rise with 17,000 to 29,000 more patents in the next 10 years.

The Future is Bright

Overall, this decision is set to empower employers and foster a more dynamic job market. While employers look to alternative strategies like confidentiality agreements and enforceable non-solicitation clauses, you can explore the job market with more freedom and fewer legal restrictions than before.

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