Everything Freelancers and Independent Contractors Need to Know About the New FTC Ban on Noncompete Clauses
The Federal Trade Commission (FTC) recently made headlines with its rule to ban noncompete agreements across the United States. This rule will dramatically alter the landscape for millions of workers, including freelancers and independent contractors. Here's everything freelancers and members of the Freelancers Union need to know about the new FTC ruling on noncompetes.
Overview of the FTC Noncompete Ban
The FTC's rule aims to prohibit all forms of noncompete clauses in employment contracts. Noncompetes are often used to prevent employees from joining competitors or starting similar businesses shortly after their employment ends. According to the FTC, these clauses have long suppressed wages, hindered innovation, and restricted workers from moving freely between job opportunities.
The ban will take effect 120 days after the final rule is published in the Federal Register. Many are anticipating that the effective date will be in late August or early September 2024. Once the rule is in effect, you can report information about a suspected violation of the rule to the Bureau of Competition by emailing noncompete@ftc.gov.
Banning Non Competes: Good for workers, businesses, and the economy
Noncompete agreements, which affect an estimated 30 million workers, disproportionately burden employees by limiting their mobility and options. Under the new FTC rule, noncompete agreements for the majority of workers will become unenforceable, with exceptions made for senior executives, constituting less than 0.75% of the workforce. However, companies are prohibited from entering into new noncompete agreements, even for senior executives. Employers are also mandated to inform affected employees that their existing noncompete agreements will no longer be enforced.
Alternatives to Noncompetes
The FTC advocates for alternatives to noncompetes, such as trade secret laws and non-disclosure agreements (NDAs), which offer avenues for protecting proprietary information without imposing restrictive conditions on employees. Additionally, the FTC recommends that companies focus on improving wages and working conditions to retain talent rather than relying on noncompete agreements.
How does this impact freelancers?
For freelancers and independent contractors, the implications are particularly significant. The rule would cover a broad spectrum of workers, explicitly including independent contractors and other non-traditional employee types such as unpaid interns and volunteers. This wide scope ensures that many who currently navigate contractual restrictions could soon experience greater job mobility and freedom to innovate.
For freelancers, the potential lifting of noncompete restrictions heralds a new era of professional freedom and innovation. It promises easier transitions between projects and clients, less fear of legal repercussions when moving within one's industry, and potentially higher earnings. Freelancers Union members and all independent contractors should keep a close watch on contracts and this new ruling, as it holds substantial implications for their professional landscapes.