In April 2024, by a vote of 3-2, the Federal Trade Commission (FTC) issued its final noncompete rule, banning employers from using such agreements in the workplace. By FTC’s broad definition a noncompete is “any contractual provision or workplace policy that has the effect of prohibiting the worker, penalizing a worker for, or functions to prevent a worker from seeking or accepting employment from a person or operating a business after the conclusion of the worker’s employment with the employer.”
In addition to banning new noncompete agreements, existing ones will not be enforceable after the effective date of the updated rule, with limited exceptions. Noncompete agreements not subject to the updated rule include preexisting ones with “senior executives” in a policy-making position and earning over $151,164 annually, sellers in a bona fide sale of a business entity and causes of action related to a noncompete clause accruing prior to the effective date. Notice that a noncompete agreement will become unenforceable must be given on paper, delivered by hand, mail, email or text message to all relevant workers.
Two legal challenges have already been filed. One claims that the rule is unconstitutional and another seeks injunctive relief from its imposition. Presuming the legal challenges are not persuasive, the rule will go into effect 120 days after publication in the Federal Registrar. Companies should work with counsel to prepare for this possibility.
Read more in “U.S. Federal Trade Commission Bans Employee Noncompete Agreements; Here’s What Employers Should Know”.
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