FTC Bans Noncompetes, Including Most Existing Agreements
At an open commission meeting on April 23, 2024, the Federal Trade Commission (FTC) voted to approve a final rule banning noncompetes. The final rule:
- Prohibits all new noncompetes after the effective date
- Makes unenforceable existing noncompetes (noncompetes entered into before the final rule’s effective date) except for noncompetes with senior executives
- Senior executives refer to workers earning more than $151,164 who are in a “policy-making position.”
- Provides for an effective date 120 days after publication
- Requires employers to provide notice that existing noncompetes are no longer enforceable
The FTC received more than 26,000 comments from the public expressing support for a comprehensive ban. The FTC vote fell 3-2 along party lines, with Democratic Commissioners Slaughter, Kahn and Bedoya voting in favor of the rule and Republican Commissioners Holyoak and Ferguson voting against.
To comply with the FTC’s final rule, employers must do the following:
- Stop enforcing existing noncompetes for all except senior executives
- Provide notice that noncompetes are not enforceable
- Avoid entering into noncompetes going forward
The FTC’s vote to approve the final rule is not expected to resolve this issue, and litigation regarding the final rule is all but a certainty. For example, the U.S. Chamber of Commerce, the world's largest business organization and network, sharply questioned, among other issues, the FTC’s statutory authority to regulate competition, and is expected to file suit soon after the rule is issued.
While legal challenges may impact the rule’s effectiveness, employers should begin determining the possible impact that the rule may have on business, including bolstering agreements and policies regarding confidentiality, non-disclosure, and trade secret obligations.
Contact Molly McDiarmid or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice and guidance.
