Why Did the FTC Ban Non-Competes?

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Why Did the FTC Ban Non-Competes?

non-compete agreement paper with pen

The FTC (Federal Trade Commission) is a federal agency that prevents fraud and unfair business practices by enforcing consumer protection laws. Most recently, in April of 2024, the FTC voted to ban non-compete agreements. While some may criticize this law, it will likely prove to be a benefit to the United States economy. To learn more about the ban and how it might affect your employment, continue reading and contact a skilled Atlanta employment rights attorney today.

What is a Non-Compete?

A non-compete agreement is a legal agreement typically between an employer and an employee. It states that the employee is not allowed to enter into competition with the employer during their employment and for a time after their employment ends. This includes sharing information, techniques, and practices with other companies. Depending on the specifics of the contract, an employee with a non-compete may not be able to work for another company in the same industry for several months or years after their employment ends.

For example, if a television network employs a very popular morning show host, they might be concerned that the host will be poached by competing stations. If the host were to leave their viewers might follow them and it could negatively impact the network’s ratings. Their employment contract might include a non-compete agreement that states that the host cannot work at any other network in a specific radius for a certain period of time.

People have also signed non-compete agreements when selling their company. Imagine a cosmetic company owner is selling their brand to a large company. It could be written into their contract that they are not legally allowed to start or work for another cosmetic company for a certain amount of years.

Why Would the FTC Vote to Ban Non-Competes?

The FTC ruled that non-competes are an unfair method of competition which violates section 5 of the FTC Act, the federal law that established the Federal Trade Commission. The ban does not invalidate all non-competes signed before the ban but prohibits the creation of new agreements. Non-competes with senior executives remain enforceable. However, for any employee who is not a senior executive, their non-compete agreements are now rendered invalid.

What Are the Effects of the FTC Ban?

Banning non-compete agreements has several effects. One of the main reasons that non-competes were banned is to promote better market mobility for employees. Now that they do not have to worry about legal repercussions, employees can seek better opportunities with other companies.

It can also encourage competition and therefore productivity. Employees can also use their knowledge to start their own businesses or projects without being hindered by a non-compete agreement.

It is estimated that the ban will lead to over 8,000 new businesses created every year and workers earning an additional $500 annually. The lack of non-competes will prove to diversify various industries, increase wages and benefits for employees, and attract skilled workers to new opportunities.

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Why Did the FTC Ban Non-Competes?

The FTC (Federal Trade Commission) is a federal agency that prevents fraud and unfair business practices by enforcing consumer protection laws. Most recently, in April of 2024, the FTC voted to ban non-compete agreements. While some may criticize this law,...

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