Federal Trade Commission (FTC) Announces Rule Banning Non-Compete Agreements
Submitted by Brian P. Goodman, Storm B. Larson and Mai Chao Chang
The FTC announced a new federal rule that, if it takes effect, would ban nearly all non-compete agreements with employees, with very narrow exceptions. The non-compete ban (“the Rule”) contains a broad definition of “non-compete agreement”, and is defined as:
[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 the term or condition.
The Rule is scheduled to go into effect on September 4, 2024. However, a lawsuit has already been filed by the US Chamber of Commerce seeking to stop the Rule from taking effect. If a court does not intervene, the Rule would also apply retroactively to currently existing noncompete agreements, rendering them unenforceable. Employers would have to provide notice to all workers that all existing non-competes are no longer enforceable.
Employers should plan and prepare for the possibility that the Rule will take effect. However, employers should hold off on taking definitive action in anticipation of the Rule at this time in case a court stops this rule from taking effect.
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