On April 23, 2024, the Federal Trade Commission (“FTC”) voted 3-2 to ban non-compete agreements. The new rule would invalidate existing non-compete agreements as well as prohibit employers from using non-compete agreements going forward. The FTC specifically exempted senior executives (executives earning over $151,164 annually and are in policy-making positions) from this new rule. The final rule issued by the FTC allows existing non-compete agreements with senior executives to remain in force because, the FTC claims, this subset of workers is less likely to be subject to the kind of acute, ongoing harms currently being suffered by other workers subject to existing non-competes.
The agency initially proposed the rule over a year ago on the basis that these agreements prevent competition, and that they inhibit new business formation and innovation. The FTC estimates that 30 million people in the United States are affected by non-compete agreements.
Our attorneys have been monitoring this proposed rule, and its potential impact on our clients. There likely will be litigation arising out of this new rule, including efforts to invalidate it by various business and industry groups that use non-compete agreements with their workforce. There will likely also be litigation to attempt to challenge the FTC’s broad definition of what is and what is not considered a “non-compete clause,” based upon the Commission’s broad interpretation of the term. The FTC's definition of a "non-compete clause" is:
“a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from
(1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or
(2) operating a business in the United States after the conclusion of the employment that includes 6§ 910.2(b)(1). 7§ 910.2(b)(4). 8§ 910.2(a)(1). 9§ 910.2(a)(2). 3 the term or condition.”
The new Rule will become effective 120 days after it is published in the Federal Register.
Contact our commercial litigation and business lawyers to discuss how this new rule affects you or your business.