The FTC Approves Final Rule Banning Non-Compete Agreements

In a groundbreaking move, the Federal Trade Commission (FTC) has issued a final rule that comprehensively prohibits the use of non-compete clauses in agreements between employers and workers. This landmark decision, which will take effect on September 4, 2024, is set to reshape the employment landscape across the United States. 

Sweeping Prohibitions and Limited Exceptions 

 The Final Rule defines a “non-compete clause” as any term or condition of employment that restricts a worker’s ability to seek or accept work with a different employer or operate their own business after the conclusion of their current employment. The rule applies to a broad range of workers, including employees, independent contractors, externs, interns, and volunteers.  

Notably, the Final Rule distinguishes between non-compete agreements entered before and after the Effective Date. While Existing Agreements with “senior executives” may be exempt, the rule broadly prohibits employers from entering New Agreements with any worker. 

Noteworthy Carveouts and Ongoing Legal Challenges 

The Final Rule does provide a few exceptions, such as allowing non-competes in the context of a “bona fide sale of a business entity.” Additionally, the rule does not explicitly apply to other types of post-employment restrictions, such as non-disclosure agreements and non-solicitation provisions, although they may still be subject to scrutiny if they effectively function as non-competes. 

However, the legality of the Final Rule has already been challenged in federal court. Within days of its publication, three lawsuits were filed, alleging that the FTC exceeded its authority. As these legal battles unfold, employers must navigate the uncertain landscape and prepare to comply with the rule, should it withstand the ongoing legal challenges. 

Employer Considerations and Next Steps 

Regardless of the legal uncertainty, employers should proactively review their existing agreements. Our team of legal professionals can help you navigate the uncertain legal landscape and prepare your business for the September 4, 2024 effective date as well as help you comply with the required notification process. We can also share with you alternatives to non-compete agreements to help you protect your business interests while remaining in compliance with the law.