A final rule-making has been issued by the Federal Trade Commission (FTC), banning non-compete agreements, which are contracts where employees agree not to engage in competitive activities with a former employer.
On April 23, 2024, the FTC issued a new rule prohibiting employers from enforcing non-competes, determining that non-competes are an unfair method of competition. The purported goal of the ruling is to promote competition by protecting the freedom of workers to change jobs, innovate, and start new businesses. The FTC asserts that the rule will encourage new business formation and wage increases, will lower healthcare costs, and will nurture the creation of new patents. The rule will take effect 120 days after publication in the Federal Register.
Importantly, the new rule not only prevents employers from entering into new non-compete agreements but prohibits them from enforcing existing non-competes, with the exception of senior executives, defined as those earning more than $151,164 annually and being in a decision-making position. Fewer than 1% of workers are considered to be senior executives. The rule also includes an exception that allows non-competes between the buyer and seller of a business.
Roughly 1 in 5 American workers are currently subject to a non-compete. With the exception of senior executives as defined under the rule, employers will be required to give written notice to those bound by non-competes stating that the non-compete will not be enforced. However, existing non-competes will not have to be formally rescinded.
The FTC determined that existing trade secret laws and non-disclosure agreements (NDAs) offer sufficient alternatives for employers wishing to protect proprietary information. Employers will likely have a different perspective, and the day after the final rulemaking, the U.S. Chamber of Commerce filed suit in federal court seeking to enjoin the enforcement of the ban. It is anticipated that additional legal challenges to the new rule will be forthcoming.
The fact sheet on the FTC’s non-compete ruling can be found here.
If you are a worker with questions about a non-compete or an employer with questions regarding complying with or joining a challenge to the new rule, contact Warner PLLC today. We can help walk you through your specific situation and provide guidance suited to your unique employment law needs.
