FTC Issues Ruling on Banning Non-Competes

On April 23, 2024, the Federal Trade Commission (“FTC”) approved a final rule banning most non-compete clauses. The FTC had previously issued a proposed rule in January 2023. Pursuant to the FTC’s final rule, after the effective date employers are banned from entering into or attempting to enforce any new non-competes. Existing non-competes for workers will no longer be enforceable after the final rule’s effective date. However, existing non-competes for senior executives can remain in force under the FTC’s final rule. The final rule defines senior executives as workers earning more than $151,164.00 annually and who are in policy making positions. Employers will be required to provide notice to workers other than senior executives who are bound by existing non-competes that they will not be enforcing any non-competes against them. The final rule will become effective 120 days after publication in the Federal Register.

The final rule defines “non-compete clause” as a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of employment; or (ii) operating a business in the United States after the conclusion of the employment.

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

According to the FTC, the final rule will promote competition by banning non-competes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.

If you have any questions in regards to the FTC’s final rule banning non-competes or alternatives to non-competes, such as non-solicitation or confidentiality clauses, that employers may still use to protect their investments please contact a member of the Labor and Employment Law Section listed below.

As always, Barrett McNagny will keep you updated of any developments, including the exact effective date as well as any delays in the enforceability of the final rule.

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