The Federal Trade Commission (FTC) has announced a crucial decision regarding non-compete clauses, issuing a non-compete clause final rule that will restrict their enforcement, particularly in the for-profit sector. This ruling, stemming from a proposed rule published in the Federal Register in January 2023, marks a pivotal moment in the ongoing debate over the use and abuse of non-compete agreements in the employment landscape.
The critical elements of the final rule are as follows:
- For-Profit Entities Only: The final rule applies exclusively to for-profit entities and does not extend to not-for-profit health systems.
- Ban on New Non-Competes: Effective 120 days after the final rule publication in the Federal Register, the imposition of new non-compete agreements will be prohibited for all workers, including senior executives. Defined as those earning more than $151,164 annually and in a “policy-making position,” senior executives represent fewer than 1% of workers.
- Treatment of Existing Non-Competes: The FTC has adopted two approaches for existing non-compete agreements, based on the status of the worker:
- For senior executives, existing non-compete agreements can continue to be enforced.
- For workers who are not senior executives, existing non-compete agreements will become unenforceable after the final rule’s effective date.
Prohibiting non-compete agreements could lead to a rise in salaries (including those of health care professionals), foster the establishment of new entities, and encourage innovation. The fact sheet on FTC’s proposed final noncompete rule also estimates $74 billion to $194 billion in reduced spending on physician services over the next decade.
As the debate over non-compete agreements continues to evolve, the FTC’s final rule stands as a pivotal step toward reforming employment practices and fostering a more equitable environment for workers. Review the complete FTC final rule, “Non-Compete Clause Rule.”
Questions about the non-compete final rule may be directed to coding@aasm.org.
