top of page
Search

New FTC Rule Bans Non-Compete Agreements

Updated: Apr 25

Heather Kramer (hkramer@fultonjeang.com)


The Federal Trade Commission (FTC) has issued a final rule on April 23, 2024, banning new non-compete agreements in employment contexts. This new rule will significantly impact employers who have previously relied on non-compete agreements to protect trade secrets and other confidential, proprietary business information.


The new rule prohibits employers from entering into new non-competes with any worker, including employees and independent contractors, or representing to any worker that they are subject to a non-compete. The ban also applies to future non-compete agreements with senior executives.


Employers may continue to enforce existing non-competes with senior executives. However, with respect to all other current and former workers, employers must notify them in writing that any existing non-competes are no longer enforceable before the new rule goes into effect.


Because the FTC's authority only extends to for-profit businesses, this new rule will not affect agreements entered into by workers in nonprofit organizations.


Non-compete agreements entered into during the "bona fide sale of a business" of a person's ownership interest in a business entity, or of all or substantially all of a business's operating assets are also exceptions to the new rule.


The new rule will become effective 120 days after it is published in the Federal Register.  Covered employers will have until the effective date to comply. The U.S. Chamber of Commerce has already filed litigation as have various other groups, which may ultimately delay the ruling’s effective date or result in the rule being modified or overturned.


What Employers Need to Know

  • Under the new FTC rule, for-profit employers are prohibited from entering into new non-compete agreements with all workers and employees, including senior executives.

  • Existing non-compete agreements with senior executives remain enforceable. Senior executives are defined as persons who hold a “policy-making position” and who received a total annual compensation of at least $151,164.00 in the preceding year. 

  • Employers must notify all non-senior executive employees and workers that existing non-competes are unenforceable by the effective date.

  • The new rule becomes effective 120 days after publication in the Federal Register, which may be delayed or stopped altogether by litigation challenging the new rule. Heather is a labor and employer lawyer with over 20 years of experience. Contact Heather Kramer at hkramer@fultonjeang for assistance. 

16 views0 comments

Comments


bottom of page