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U.S.A. Federal Trade Commission: Noncompete Rule

On Tuesday, 23 April 2024, the Federal Trade Commission (FTC) voted to eliminate the Non-Compete Agreement (henceforth ‘Agreement’), which affects about 18% of the US workforce, or about 30 million people, according to FTC estimates.

The proposal to abolish the Agreement was made by the FTC in January 2023. Of the 26,000 comments received, 25,000 (97%) were in favour of the proposal.

FTC President Lina Khan argues that the freedom to change jobs is the foundation of a free and competitive economy. In her view, the Agreement prevents workers from improving their working conditions and wages, while limiting companies’ opportunities to grow. The lifting of this ban, therefore, would promote greater dynamism, innovation and healthy competition.

According to FTC estimates, the removal of the Agreement will lead to a 2.7 per cent annual increase in the formation of new companies (about 8,500), an average increase in wages of $524 and a reduction in healthcare costs of $194 billion over the next decade. In addition, patents are expected to increase by up to 29,000 per year over the next ten years.



This decision will have profound consequences for employers who have so far relied on the Covenant to protect trade secrets and intellectual property. However, intellectual property will remain protected through other agreements, such as the Non Disclosure Agreement (NDA), already signed by 95 per cent of employees subject to the Agreement.

Companies will have to eliminate existing Non-Compete Agreements for most employees and inform both current and former employees of the termination of the covenant’s applicability before the rule takes effect.

Some employers oppose the rule, arguing that the FTC does not have the legal authority to regulate competition. The US Chamber of Commerce has stated its intention to challenge the rule in court.

The rule will take effect 120 days after it is published by the FTC in the Federal Register and will apply to all those working in for-profit companies, while it will not affect workers in non-profit companies.

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