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Wednesday, April 24, 2024

FTC Bans Noncompetes

A Tuesday release from the Federal Trade Commission:
Today, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.

Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade. In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.

Last year, the Authors Guild supported the proposed rule:

The FTC’s proposed rule would deem clauses that prohibit workers (including independent contractors) from working with others after the conclusion of their current engagements to be a violation of Section 5 of the FTC Act. Clauses that prevent authors and journalists from publishing similar works with others, or from working with competitors, are common in writing agreements, including book, journalism, and freelance contracts. In most cases, courts have found these clauses to be invalid, but authors often lack the resources or desire to get into a legal battle with their publishers and are unlikely to sue. If the FTC’s rule is enacted, authors could simply reject such clauses as invalid, pointing to the FTC rule.

The Authors Guild has long objected to non-compete clauses and advised their removal in our contract reviews. These clauses, which are purportedly designed to protect publishers’ investments by preventing authors from selling the same or substantially similar work to another publisher, are often too broad. Authors are routinely asked to agree not to publish other works that might “directly compete with” the book under contract or “be likely to injure its sale or the merchandising of other rights.” Even more broadly, they may be asked not to “publish or authorize the publication of any material based on the Work or any material in the Work or any other work of such a nature such that it is likely to compete with the Work.”