On April 23, the Federal Trade Commission voted 3-2 to issue a new rule prohibiting the use of noncompete agreements for most U.S. workers. It is estimated that approximately 30 million workers are currently bound by such agreements, which prevent them from changing employers in their industry.

The FTC asserts that noncompete agreements are bad for the labor market, discourage workers from starting their own businesses, and suppress salaries. The rule is part of the 2021 Executive Order on Promoting Competition in the American Economy.  

Many industries—including manufacturing, construction, technology and healthcare—include noncompete language in their employment contracts. These agreements prevent workers from leaving one job and going to work for a competitor. They also prevent workers from using their industry knowledge to form a new company.

The new rule is expected to go into effect in 120 days. At that time, any new noncompete agreements would be prohibited for all workers. For existing noncompete agreements, most would not be enforceable after the effective date. However, for senior executives, existing noncompetes would remain in place. Senior executives are defined as those earning more than $151,164 each year and holding policy-making roles. It is estimated that less than 1 percent of workers are categorized as senior executives.

Under the new rule, noncompete agreements will be illegal and employers are required to inform workers (other than senior executives) that any current agreements are void.

Watch as Trent Cotney, partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel, weighs in on what this means.