FTC Ruling on Non-Compete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to void and ban all non-compete agreements.

The FTC originally proposed the Non-Compete Clause Rule on January 19, 2023, pursuant to President Biden’s 2021 “Executive Order on Promoting Competition in the American Economy.” After review of approximately 26,000 public comments over the course of 15 months, the FTC adopted the final rule addressing non-competes.

The final rule effectively bans all new non-compete agreements for all workers (including CEOs to mailroom workers and everyone in between, including independent contractors) and requires employers to inform their current and past employees who entered into non-compete agreements that they will not enforce those non-compete agreements. The final rule is also retroactive, meaning that once it becomes effective, all non-compete agreements that existed prior to the rule are invalid, with the sole exception of existing agreements with “senior executives.” Senior executives refer to workers earning more than $151,164 who are in a “policy-making position.” New agreements, even those involving senior executives, are prohibited after the effective date.

Non-solicit agreements could also be implicated by the final rule. The FTC’s definition of non-competes as set forth in the final rule is broad and includes any agreements or contractual provision that have the effect of prohibiting or preventing a worker from seeking or accepting employment. Depending upon the language of the non-solicitation agreement at issue and how broad it is, the FTC could construe a non-solicitation provision as a non-compete agreement and find that the non-solicitation agreement is also prohibited. Moreover, non-disclosure provisions that are written so broadly as to effectively preclude an employee from working in the same position for a new employer are also expressly prohibited by the final rule.

The final rule does not pertain to confidentiality and trade secret provisions. Federal and state trade secret protections will remain in place and employers will be able to protect trade secrets and confidential information by contractual provisions and retain the same rights under those laws.

It is expected that the FTC will publish the final rule in the Federal Register within the next week. Thereafter, employers will have 120 days to come into compliance, at which time the final rule becomes effective. It is expected that there will be legal challenges asserted by employers, business groups, and other advocacy groups, which could act to delay the final rule from becoming effective. In the meantime, employers will need to decide whether to come into compliance with the rule or do nothing, with the expectation that the final rule will be blocked by the courts.

We are still in the process of reviewing the entire text of the final rule but our attorneys are ready to answer any questions as to the effect of the final rule on employers and employees.

Here is a link to the final rule: https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf

The final rule shall not apply to:

1) a non-compete clause that is entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s assets; or

(2) where a cause of action related to a non-compete clause accrued prior to the effective date of the final rule.

Mark A. McNitzky

Mark McNitzky has significant experience providing both public and private clients with general advice, counsel, litigation representation in a broad range of employment and labor matters. Mark assists employers in all forms of compliance with local, state, and federal employment laws, including ...