FTC Announces Final Rule Banning Noncompetes

Non-compete clauses are commonly used in employment contracts to prevent employees from working for a competitor or starting their own competing business and are often used to protect the employer’s trade secrets and business interests.

In 2023, the Federal Trade Commission (FTC) announced its proposed rule banning non-compete provisions, arguing the move would protect workers from unfair labor practices, reduce litigation costs, and help promote competition in the labor market.

After considering public comment on its proposal, the FTC issued a proposed final rule on April 23, 2024.  Under the final rule, existing non-competes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing non-competes for “senior executives” can remain in force, but employers are banned from entering into or attempting to enforce any new non-competes, even if they involve senior executives. A “senior executive” is defined as a worker in a “policy-making position” and who earns more than $151,164 annually.

Employers will be required to provide notice to workers other than senior executives who are bound by an existing non-compete that they will not be enforcing any non-competes against them.

The final rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity.

The rule goes into effect 120 days following its publication in the Federal Register.  However, the Chamber of Commerce and other business organizations have already sued the FTC to block the enforcement of the final rule, arguing the FTC exceeded its rule making authority.  Observers expect a lengthy legal battle before the rule becomes effective—if at all.

Woods Fuller's Labor and Employment Law attorneys help businesses protect and manage their workforce in today’s challenging employment environment. We provide experienced counsel in the face of constantly changing law policies and regulations. For information on how this new policy will affect your business, contact our Labor and Employment Law team.