In a 3-2 vote, the Federal Trade Commission (“FTC”) issued a new rule (the “Final Rule”) on April 23, 2024, banning virtually all post-employment non-competes in employee-employer contracts.
In a highly anticipated decision, the FTC found that non-compete agreements between an employer and employee are unfair competition violating section 5 of the FTC Act. A “non-compete” provision prohibits a former worker from competing with their former employer, directly or indirectly, for a specific duration and (often) within a specific geographic region. The final Rule applies to all for-profit employers and prohibits employers from entering into new non-competes with any employee or enforcing existing non-competes for the vast majority of workers.
Below are the key points about the Final Rule that you should know:
- The Final Rule bans all employment non-competes for all workers (including senior executives) after the effective date.
- Existing non-competes are unenforceable for all workers, except for “senior executive” workers. A senior executive is defined as a worker “earning more than $151,164 annually who is in a policy-making position.”
- Employers must notify current and former workers that any existing non-compete agreements will not be enforced.
- The Final rule applies to employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide a service to a customer.
- The Final Rule does not apply to (1) franchisee/franchisor relationships; (2) certain nonprofit organizations who are not subject to the FTC’s jurisdiction; or (3) in connection with the sale of a business entity.
- The Final Rule does not ban non-disclosure (NDA) or confidentiality agreements.
- The Final Rule will become effective 120 days after its publication in the Federal Register.
The Final Rule is expected to have significant impact on employers across all industries and employers should expect to face added complexity to an already tight labor market. Moving forward, employers should seek guidance on restructuring their employment agreements to comply with the Final Rule and consider alternative ways to protect their businesses’ proprietary and confidential information. As such, while employers should prepare to come into compliance with the Final Rule, it is expected that the Final Rule will be challenged in court. Thus, whether the Final Rule is ultimately enforceable is yet to be determined.
For more information and guidance on the FTC Final Rule and its impact, contact me or your BrownWinick employment attorney. We are available to assist with any questions, concerns, or issues related to your business and employment-related actions.
