In a landmark decision, the Federal Trade Commission (FTC) voted on April 23, 2024, to approve a final rule that effectively bans most non-compete agreements with employees nationwide (1). This means employers will no longer be able to restrict where workers can go after leaving their jobs, with some exceptions.
Why the Ban?
The FTC argues that non-compete agreements stifle competition by limiting workers’ ability to move to higher-paying jobs or start their own businesses. They found that these agreements disproportionately harm low-wage workers, who may lack the resources to challenge them in court.(2)
What Does the Rule Entail?
The final rule prohibits employers from entering into new non-compete agreements with almost all workers and requires them to rescind existing ones, with the exception of agreements with senior executives and those entered into as part of the sale of a business.(3)
Key Points for Employers:
- Employers cannot enforce existing non-compete agreements with most employees.
- Employers must rescind existing non-compete agreements and notify employees that they are no longer enforceable. The FTC provides model language to assist with this notification.
- Employers can still restrict the use of confidential information by employees through non-disclosure agreements (NDAs).
What This Means for Workers:
- Workers have more freedom to pursue new job opportunities after leaving their current employer.
- Existing non-compete agreements may no longer be enforceable against workers.
- It’s important for workers to consult with an attorney if they have questions about a specific non-compete agreement.
The Road Ahead
The rule is set to take effect 120 days after publication in the Federal Register, which occurred on May 7, 2024. Thus, the effective date is September 4, 2024. However, legal challenges are anticipated, and the rule’s ultimate fate may be decided in court.
Please note: This blog post is strictly informational and does not constitute legal advice. Reach out to your General Counsel or Business Attorney to see how this may affect you.
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References:
- FTC Announces Rule Banning Noncompetes – https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes
- Noncompete Rule – https://www.ftc.gov/legal-library/browse/rules/noncompete-rule
- FTC Rule Banning Most Non-Competes – https://www.jdsupra.com/legalnews/ftc-rule-banning-most-non-competes-4352309/#:~:text=On%20April%2023%2C%202024%2C%20the,5%20of%20the%20FTC%20Act.