The U.S. Federal Trade Commission’s recent decision to ban non-compete agreements marks a pivotal shift in employment regulations nationwide. This rule not only prohibits new agreements but also retroactively impacts existing ones. From its broad definition of “worker” to its exceptions and impending legal challenges, understanding the nuances of this rule is crucial for employers preparing for compliance. JMBM Partner Michael H. Strub, Jr. explains the implications of this landmark decision.
FTC Announces Rule Banning Non-Competes
by
Michael H. Strub, Jr., JMBM’s Litigation Group
Employers throughout the country should be aware that on April 23, 2024, the U.S. Federal Trade Commission adopted a rule that would generally prohibit non-compete provisions, which prohibit workers from accepting work in a competing business or operating a competing business. Specifically, the rule prohibits employers from entering into new non-compete provisions and acts retroactively to prohibit employers from enforcing existing ones.
The rule defines “worker” broadly, and includes, for example, independent contractors and unpaid workers. The rule includes an exception in connection with the bona fide sale of a business and allows existing lawsuits to enforce non-compete clauses to continue. The rule also permits enforcement of existing non-compete provisions with senior executives—policy makers whose total compensation is at least $151,164 when annualized—but prohibits new ones.
The rule also requires employers to give notice of the new rule, so there will be yet another piece of paper that must be tacked to the cork board in the company kitchen.
The ban will take effect 120 days after the final rule is published in the Federal Register and employers should be prepared to develop compliance plans.
Update
Employers should take note that lawsuits from several business lobbies, including the U.S. Chamber of Commerce, have already been filed against the FTC in response to this rule. Stay tuned for ongoing updates as legal challenges progress. Employers may consider filing a lawsuit of their own, but it’s worth considering: why spend money if others are already waging the war?
You can read two of the recently filed complaints below seeking to stop effectiveness of the new rule:
