FTC Issues Final Rule Banning Employer Noncompete Agreements

April 24, 2024

The Federal Trade Commission (FTC) issued a final rule on April 23, 2024, that prohibits employers from enforcing noncompete agreements against workers with very limited exceptions.

The final rule, which was informed by more than 26,000 public comments, generally prohibits employers from entering into new noncompetes with workers and from enforcing existing such agreements with workers other than senior executives. The commission also called noncompetes “an unfair method of competition, and a violation of Section 5 of the FTC Act,” according to an FTC news release.

Noncompete agreements, affect about 30 million American workers, and are "widespread yet often exploitative" agreements that prevent job changes or new business ventures, the FTC said. The commission also noted that the agreements can lead to “significant personal and financial burdens,” such as lower-paying roles or legal battles.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The FTC has published a fact sheet that details several provisions in the new rule, including:

  • The rule prohibits employers from enforcing noncompetes on workers other than senior executives—workers who are policy decision-makers earning more than $151,164—as of the effective date.
  • The rule requires employers to notify workers whose noncompetes are no longer enforceable that their noncompetes are no longer in effect and will not be enforced.
  • The rule includes an exception that allows noncompetes between the seller and buyer of a business.

FTC notes it cannot enforce this authority against non-profit entities; however, the rule states that the entity’s corporate form and status is not dispositive of whether the entity is truly a non-profit. Rather, the FTC will apply a fact-specific test to determine whether the entity (such as a hospital) is in fact organized for profit.

For questions and concerns regarding individual circumstances, please consult your legal counsel.

The rule will become law 120 days after it is published in the Federal Register, although enforcement may be delayed by significant legal challenges seeking to invalidate the rule.

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