The Federal Trade Commission on Tuesday voted 3-2 to ban non-competes in a long-awaited decision from the agency. The FTC further believes that the decision will positively spike new business starts, potentially creating more than 8,500 new businesses a year. Considering that there were 5.5 million new business applications in 2023, that figure floated by the FTC doesn’t seem too far off. “[M]any potential entrepreneurs wrote to the Commission to describe how they wanted to strike out on their own, but a non-compete prevented them from doing so,” the FTC wrote in its sprawling 570-page rule. In one instance, the FTC recounts how a veterinarian said they were forced to sell their home and leave their state because of a non-compete. The non-compete prevented this veterinarian from opening a practice within 30 miles of any of the four locations of the practice that they once worked at. Then again, that figure for new business starts could be “aspirational,” as Michael Wexler, a partner at Seyfarth Shaw puts it. “Who was surveyed about this? People who sold businesses and don’t want to honor noncompetes?” asks Wexler, who co-chairs the firm’s trade secrets, computer fraud, and non-competes practice group. “People who feel they should leave with the secret sauce from a business and use it in a new business without the time and resources committed by a prior employer or business[?]” The only exception carved out in the new rule applies to pre-existing non-competes for senior executives, which is defined as those earning an annual salary above $151,164 and are in a “policy-making position.” Any new agreements for those within that position, however, would be banned. Noncompetes don’t just bar would-be entrepreneurs, according to the FTC, but also makes it difficult for future founders to hire specific talent who may face non-competes themselves. The agency estimates that workers could nab an additional $400 billion to $488 billion in higher wages within the next 10 years. It’s all but certain that the rule will be taken to the courts–the U.S. Chamber of Commerce is one of many staunch opponents of the rule. Litigation would delay its enforcement, points out Roger Feicht, a labor and employment attorney at Gunster law firm. “Much of the 570-page final rule is legal argument that the FTC has the authority as a federal agency to issue such a wide-reaching law that implicates both future contracts and past contracts between employers and employees,” Feicht says.
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