On April 24th the FTC announced its long anticipated final rule on noncompete agreements. The final rule largely follows the previously published version and bans noncompete agreements in most circumstances for employees, independent contractors and other “workers.” There are, however, some exceptions. Furthermore, the rule is not yet law and may not become law.
In a press release, the FTC justified the action as necessary to address growing concern regarding noncompete clauses, which, according to the agency, “negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers.” Per the agency, banning non-competes will lead to 2.7% more new businesses, increased wages of $524 for the average worker, lowered healthcare costs of $194 billion, and an average of 17,000-19,000 patents annually.
Under the final rule a noncompete agreement is impermissible except for non-competes entered into pursuant to a bona fide sale of: a business entity; all or substantially all of the entity’s assets; or the person’s ownership interest in the entity. In a change from the prior version there no longer must be a sale of at least 25% of an ownership interest.