U.S. Ban on Noncompete Agreements

The Federal Trade Commission (FTC) voted 3-2 on April 23 to ban noncompete agreements in the United States, which prevent employees from taking jobs with competitors or starting competing companies for a certain period of time. According to the FTC, an estimated 30 million workers, or nearly one in five Americans, are subject to a noncompete.  

  

Under the new rule, existing noncompetes for most workers will no longer be enforceable after the ban’s effective date. Existing noncompetes for senior executives (less than 0.75% of workers and defined as employees earning more than $151,164 annually who are in policy-making positions), can remain in force, although employers are banned from entering into or enforcing any new noncompetes going forward, even those involving senior executives.  

  

The Commission notes that employers still have alternatives to noncompetes such as trade secret laws and non-disclosure agreements (NDAs) that provide employers with the ability to “protect proprietary and sensitive information.” 

  

“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.” 

 – Lina M. Khan, FTC Chair 

  

The FTC believes the ban will give Americans more freedom and room for innovation. The Commission found that noncompetes can “[inhibit] efficient matching between workers and employers” and “inhibit new business formation and innovation.” The FTC estimates that banning noncompetes will result in more than 8,500 additional new businesses created each year and yield higher earnings for workers.  

  

FTC officials asserted in January last year, when the ban was proposed, that noncompetes are harmful to workers as they restrict an employee’s ability to switch jobs for higher pay, as well as reducing the number of jobs that become available as fewer people are able to leave their positions. Business groups have criticized the ban, however, as casting too wide a net, arguing that executives are often able to win greater pay by accepting a noncompete as part of a job offer.  

  

The ban is due to take effect 120 days from its publication in the Federal Register, however, it is already facing challenges in court, including a lawsuit from the U.S. Chamber of Commerce, filed on April 24, who argue that the FTC overstepped its authority.  

  

Noncompetes and the Art World 

  

Professionals in the art world most affected by noncompete agreements include those working within the auction house sphere, as well as executives at galleries and advisories. These businesses rely heavily on confidential client lists and relationships. 

  

A ban on noncompetes could result in increased mobility of art professionals within the industry, whether switching employers, or striking out to start their own venture without fear of legal repercussions. As a result, we may see enhanced competition by art businesses for talent, driving employers to offer more competitive compensation and benefits packages to employees, as well as affecting how businesses structure their employment contracts, and manage retention strategies.  

  

Auction houses especially may find they have access to a larger pool of candidates, potentially leading to a more competitive and diverse workforce. A ban on noncompetes could also facilitate knowledge transfer as art professionals gain valuable skills, experiences, and industry knowledge from working with different galleries and auction houses, and the ability to move more freely between employers could foster a more collaborative industry.   

  

Without the constraints of noncompetes, art world professionals may also be more inclined to take creative risks, potentially leading to a more dynamic art market, and a more competitive environment where new businesses with innovative ideas and approaches have a better chance of gaining traction.  

  

If successful, the art industry may benefit from greater worker mobility, knowledge sharing, and increased competition, however, although the potential ban offers promising prospects, the FTC’s decision faces significant opposition and a lengthy legal battle ahead.  

  

Further Resources: 

FTC Press Release

Associated Press on the Ban

New York Times: Business Groups Sue to Stop F.T.C. from Banning Noncompete Clauses

Photo Credit:

Scott Graham