• Join your peers at SSTI's 2024 Annual Conference!

    Join us December 10-12 in Arizona to connect with and learn from your peers working around the country to strengthen their regional innovation economies. Visit ssticonference.org for more information and to register today.

  • Become an SSTI Member

    As the most comprehensive resource available for those involved in technology-based economic development, SSTI offers the services that are needed to help build tech-based economies.  Learn more about membership...

  • Subscribe to the SSTI Weekly Digest

    Each week, the SSTI Weekly Digest delivers the latest breaking news and expert analysis of critical issues affecting the tech-based economic development community. Subscribe today!

The Federal Trade Commission finalizes a new rule to prohibit employers from enforcing noncompetes; the rule is expected to increase the number of startups

April 25, 2024
By: Michele Hujber

The Federal Trade Commission has issued a final rule to promote competition by banning noncompetes against workers nationwide. According to the FTC press release, this final rule protects the fundamental freedom of workers to change jobs, increases innovation, and fosters new business formation.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.

In Part IV.B.3.b.i, “non-competes inhibit new business formation,” the final rule details the studies it reviewed and weighted in credibility to reach its conclusion about the number of additional new businesses that would be created. It includes a discussion of each study along with justification for weighing their conclusions heavily or not. The studies given high weight included “The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship,” which found a 7% impact from noncompetes. Another study, Employee Non-Compete Agreements, Gender, and Entrepreneurship,” found that an average increase in non-compete enforceability decreases the entry rate by 3.2%.

There does not appear to be an explanation of the math resulting in the commission’s estimate of 8,500 additional new businesses created each year from non-competes in the final rule, but it does state on pages 172-173, “The Commission’s finding that non-competes inhibit new business formation is principally based on the empirical evidence described in this Part IV.B.3.b.i.”

The rule also prohibits employers from enforcing existing noncompetes with workers other than senior executives. The FTC press release states that “existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.”

new business formation