The Federal Trade Commission announced that it would prohibit 'prohibition of job transfers to rival companies,' giving workers more freedom to change jobs.
On April 23, 2024, the US Federal Trade Commission (FTC) announced that it would ban the establishment of 'non-compete clauses' that prohibit employees from changing jobs to rival companies or from working part-time or starting a business in the same industry. This will protect workers' freedom to change jobs and is expected to promote innovation and the formation of new businesses.
FTC Announces Rule Banning Noncompetes | Federal Trade Commission
While the 'non-competition obligation,' which prohibits employees from working part-time in the same industry while employed or from working for a competing company after leaving the company, has the advantage of protecting the company's interests, it has the disadvantage of depriving employees of the freedom to change jobs.
The FTC notes that 'non-compete agreements impose significant harms and costs on workers, such as forcing them to stay in a job they want to leave, forcing them to move into a lower-paying field, forcing them to relocate, and forcing them to face costly litigation. An estimated 30 million workers are subject to non-compete agreements, making them a widespread and often exploitative practice in the United States.'
To improve this situation, the FTC has set a rule banning non-compete agreements nationwide. The rule goes into effect 120 days after publication in the Federal Register, and declares that all non-compete agreements for all companies will become void from that date onwards. Existing non-compete agreements for senior executives will remain valid, but new non-compete agreements will be prohibited. The relevant senior executives are defined as those who earn more than $151,164 (approximately 23.4 million yen) per year and are in a position of decision-making power, and the number of people who fall into this category is less than 0.75% of the total workforce.
'Non-compete clauses stifle the vitality of America's economy by keeping wages low, stifling new ideas, and denying an estimated 8,500 new businesses a year,' said FTC Chairman Lina M. Khan. 'Our final rule banning non-compete clauses will ensure Americans are free to pursue new jobs, start new businesses, and bring new ideas to market.'
The FTC estimates that the final rule banning non-compete agreements will result in a 2.7% increase in new business annually and an average of 17,000 to 29,000 additional patents over the next 10 years. It also
The rule solicited public comments in advance, and of the 26,000 total comments, more than 25,000 were in support of banning non-compete obligations.
As an alternative to non-compete agreements, the FTC suggested companies could require workers to sign trade secret protection and non-disclosure agreements (NDAs) or improve wages and working conditions to retain their jobs.
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