You heard us right – the Federal Trade Commission ("FTC") issued this historic final rule today that will invalidate the use of employee noncompete agreements by most private employers. The genesis of this ban stems from the FTC's determination that noncompete clauses are an unfair method of competition, which was first announced when the FTC issued its proposed rule to ban noncompete clauses in January 2023.
The final rule has an effective date of 120 days after the date of publication in the Federal Register. Noncompete Rule (ftc.gov). Agreements that are functionally equivalent to a non-competition agreement, or penalize someone for violating the non-competition agreement, also are prohibited. The final rule includes a few notable exceptions, including that: (a) the final rule does not apply to certain banks, savings and loan institutions, federal credit unions, common carriers, air carriers and other entities not subject to the jurisdiction of the FTC, (b) non-compete agreements signed before the effective date of the Rule by executives who qualify as "senior executives" earning more than $151,164 in total compensation may be enforced, (c) non-compete agreements entered into in connection with a bona fide sale of a business are not barred if certain criteria are satisfied, and (d) lawsuits may proceed as to claims which accrued before the effective date of the Rule.
Crucially, the final rule applies retroactively, so employers will now be required to provide their employees who are currently subject to an existing noncompete clause1 with written notice—no later than 120 days after the final rule is published in the Federal Register—that their non-competes are no longer enforceable.
We will be providing you a more detailed summary and guidance about the new rule and will be conducting a webinar, well in advance of the effective date after we have reviewed and studied the rule in detail. Stay tuned. In the interim, if you have any questions, please contact anyone in our Labor & Employment Practice Group with whom you regularly work.
Footnote
1. Excluding "senior executives" as defined in the final rule.
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