Non-Competes To Be Prohibited for All Workers

On April 23, 2024, the Federal Trade Commission (FTC) released a final rule barring employers from requiring workers to agree not to compete with them. The rule also invalidates existing non-compete agreements for any current or former worker who is not considered a “senior executive” – “senior executives” being those workers in “policy-making positions” and earning at least $151,164 annually. The rule will become effective 120 days after it is published in the Federal Register (the “Effective Date”).

On and after the Effective Date, attempting to enter into a non-compete agreement with workers, enforcing an existing agreement, or representing that a worker (other than a senior executive who entered into the agreement prior to the Effective Date) is subject to such an agreement is considered an unfair method of competition. 

The rule requires employers to send a notice to current and former workers with whom they have entered into non-compete clauses by the Effective Date, stating essentially that such clauses are no longer valid and they will not be enforced, and clearly stating that the worker can compete. 

There are some exceptions to the rule, including for agreements between franchisees and franchisors, and the sale of a business entity or a person’s ownership in a business entity. The rule also only applies to companies over which the FTC has jurisdiction, so banks, credit unions, savings & loan associations, air carriers, common carriers, companies covered by the Packers & Stockyards Act, and nonprofits (except nonprofits whose members are for-profit companies, such as, trade associations) are not impacted by the rule.

Several challenges to the new rule are already pending; it remains to be seen whether any will succeed and whether the rule will ultimately stand.

For now, employers should be prepared to review any existing agreements with workers for language that may be barred under the new rule, and update agreements for the future to ensure they are compliant with the new rule. Employers should also be prepared to send the required notice to current and former workers who agreed to non-compete clauses before the Effective Date.

Contact attorney Emily Gordon who is prepared to assist employers in complying with this new rule.