🎉 Non-competes are NO MORE!

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Good Afternoon Party People! 🎉

We come bearing GREAT news today. Non-competes are no more. Today’s Party dives into all the details.

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DEEP DIVE

Non-Competes are No More!

Non-competes are like sitting next to the smelly person on a plane. They’re annoying. And you can’t get rid of them.

But we have good news:

Earlier this week, the FTC voted 3-2 to issue a final ruling that prohibits the enforcement of most non-compete agreements.

The rule says it violates federal antitrust laws for employers to enter into noncompetes with workers after the rule’s effective date, which is predicted to be August of this year.

Existing noncompetes with senior executives may remain in place but will be void for all other workers.

💡The FTC estimates that about 20% of U.S. workers are subject to non-compete agreements; about 30 million workers in total.

(That’s a lot)

Leading up to the vote, the agency considered public comments. Roughly 25,000 out of the 26,000 total comments were in favor of the rule to ban noncompete agreements.

Heck of a ratio.

A rare case of a government agency listening to what the people want!

💰 The FTC estimates that the non-compete ban will increase worker earnings by $400 million over ten years, or roughly $524 per worker per year!

“It’s so profoundly unfree and unfair for people to be stuck in jobs they want to leave, not because they lack better alternatives but because of noncompetes. This problem affects so many. It really affects all of us, even if no one in your family is subject to a noncompete.”

Rebecca Slaughter, a Democratic commissioner who voted in favor of the rule

The exception for senior executives is a change from the FTC’s original proposal of the rule in January of 2023. The rule defines “senior executives” as workers who make more than $151,164 per year (oddly specific) and are in a “policy-making position.”

The rule defines a “policy-making position” as:

  • A business entity’s president, chief executive officer or the equivalent.

  • Any other officer of a business entity who has policy-making authority.

  • Any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority.

🚨 The new rule drew backlash from employers (of course) and many employer attorneys argued that the FTC doesn’t have the authority to enforce such a rule.

They also argued that it would likely put sensitive business information and trade secrets at risk. Fair point.

Lobbyists in favor of the rule say that’s not the case in the vast majority of non-compete agreements.

“Non-competes often do not benefit the individual low-wage workers who are subject to them. Specifically, low-wage workers may be harmed by the restrictions on their ability to accept the best available jobs and are often not compensated for this harm.”

Antitrust Section of the American Bar Association

🤓 A brief history of non-compete regulations:

  • Noncompetes have been around since the Middle Ages, with the first documented case taking place in 1414. An apprentice named John Dyer promised to refrain from practicing his trade for six months in the town where he had been trained. The “employer” seeking to enforce the agreement didn’t show up for the hearing and the judge ruled that the restriction shall not be enforced.

  • The modern standard of noncompetes emerged in the early 1700s with Michael v Reynolds which established the framework for the enforceability of the agreements.

  • For 200+ years that noncompetes have been regulated in the United States, they’ve been governed by state authority. Three states (Oklahoma, California, and North Dakota) have banned noncompetes since the 1800s and Montana has similar language in their state law regarding non-competes but hasn’t been as strict on enforcing it to employers. Starting in 2007 (the year of the iPhone 1), more states started to take the side of workers by restricting companies’ ability to force workers into non-compete agreements.

  • In 2014, the feds started to look into regulation after Jimmy John’s created a firestorm by revealing that minimum wage sandwich makers were forced to sign noncompetes. Shortly after, the first federal bill “Mobility and Opportunity for Vulnerable Employees Act” was proposed but ultimately not passed.

  • In the years between 2014 and 2024, similar bills have been proposed and passed at the state level, but nothing as big as this federal rule change was on the radar until last year.

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