Potential Ban of Employee Non-Compete Provisions

FTC’s Potential Ban of Employee Non-Compete Provisions

On April 23, 2024 the FTC adopted a final rule that bans non-compete clauses between employees and employers. The final rule provides that it is an unfair method of competition, and therefore a violation of section 5 of the FTC Act, for persons to, among other things, enter into non-compete clauses (“non-competes”) with workers on or after the final rule’s effective date. 

Existing non-competes with employees will no longer be enforceable after the effective date. Under the final rule employers will have to provide notice to its employees who are bound to an existing non-compete that said non-compete will no longer be enforced against them in the future.  

The new rule will become effective 120 days after it is published in the Federal Register by the FTC, and employers will have until the effective date to notify their employees that the non-compete clauses will no longer be enforced against them. The new rule does allow existing non-competes with senior executives to remain in force. Under the rule a senior executive is defined as workers earning more than $151,164.00 annually, and who are in policy-making positions. 

It should be noted that the final rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity. In addition, the final rule does not apply where a cause of action related to a non-compete accrued prior to the effective date.

The US Chamber of Commerce sued the FTC on April 24, 2024 seeking to block the FTC’s rule that bans non-compete provisions. As such, whether the rule is ultimately enforceable is yet to be determined.  

In the event the final rule becomes effective, employers will have to look to other ways to protect themselves. Trade secret laws, non-solicitation and non-disclosure agreements are ways employers can protect themselves and their proprietary and sensitive information. As such, employers should be aware of the potential changes and should be prepare to modify their employee agreements accordingly. 

We will continue to monitor what is occurring as it relates to non-compete provisions and will provide updates. To review the FTC’s ruling see the below link.

https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf

R. Scott Moore, Esq.
Senior Associate Attorney
Soto Law Group, P.A.
scott@sotolawgroup.com

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