FTC Votes to Ban Non-Compete Clauses

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The Federal Trade Commission voted 3-2 on April 23, 2024 to approve a Final Rule effectively banning for-profit employers from enforcing a “non-compete clause” in any agreement with its employees, even those in highly-compensated executive positions. The rule broadly defines “non-compete clause” to include any term or condition of employment that penalizes a worker for or functions to prevent a worker from leaving a job subject to a non-compete clause to work for a person different from his or her current employer or to operate a business.  The Final Rule characterizes non-compete clauses as a form of unfair competition prohibited under Section 5 of the Federal Trade Commission Act.

Although the Final Rule permits the continued use of a non-compete clause in connection with the sale of a business and creates a small window for litigation of existing claims, there are no other exceptions. The Final Rule does permit the continued enforcement of existing non-compete clauses against a “senior executive” in a “policy-making position” who made at least $151,164 in total compensation the preceding year, but imposes a complete ban on any new non-compete clauses for any employee or independent contractor working for a for-profit business in the U.S. Employees who do not meet the “senior executive” exception must be notified by their employer in writing that any non-compete clause they are currently subject to is no longer enforceable.

The Final Rule is scheduled to take effect 120 days from its publication in the Federal Register on May 7, 2024. Three lawsuits challenging the rule have been filed, two in Texas and one in Pennsylvania.

The Final Rule does not affect the enforceability of confidentiality or non-disclosure agreements or non-solicitation agreements. Clients concerned about the enforceability of their employment agreements should contact our Labor & Employment attorneys by clicking here.