FTC Publishes Final Rule Banning Non-Compete Agreements

FTC Publishes Final Rule Banning Non-Compete Agreements

On Tuesday, April 23, 2024, the FTC published a final rule banning new non-compete clauses in employment contracts with all workers after its effective date. The rule goes into effect 120 days following its publication in the Federal Register, which could be as early as August of this year.

Under the final ruling, existing non-compete agreements—except for those covering senior executives—are unenforceable after the effective date. For senior executives, existing non-competes can remain in force, even after the effective date. However, new agreements with senior executives will be prohibited after the effective date. They define a “senior executive” as a worker in a “policy-making position” who earns more than $151,164 annually through salary, bonuses, and/or commissions, but excluding fringe benefits, retirement contributions, and medical/life insurance premium payments.

The only exception is for non-competes that are agreed to in the a sale of business. The ruling states, “The requirements…shall not apply to a noncompete 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 operating assets.”

As a federal government agency, the FTC’s ruling preempts all current state laws limiting non-competes that are not consistent with it, unless the state’s laws provide greater worker protection than the new rule.

The new rule requires employers to provide “clear and conspicuous” notice to current and former workers that their non-compete clauses are no longer enforceable. The FTC has provided model forms of notice in several languages for employers to use or reference in their communications.

It is anticipated that there will be multiple legal challenges that could delay enforcement, including a lawsuit that was filed in Texas within hours of the release of the rule.

The full text of the new rule is available here.

Should you have any questions regarding the FTC’s ruling on non-competes, contact either of the attorneys listed below or your Kotz Sangster relationship attorney.