FTC Bans Most Non-Compete Agreements

New Rule Will Ban Most Non-Compete Provisions

The Federal Trade Commission (“FTC”) has issued a new Rule that soon will ban virtually all non-compete agreements in the United States.

FTC Rule will Ban Non-Compete Provisions.Specifically, on April 23, 2024, the FTC issued a new Rule that deems it to be an unfair method of competition for anyone to (1) enter into or attempt to enter into a non-compete clause, (2) enforce or attempt to enforce a non-compete clause, or (3) tell someone else that a worker is subject to a non-compete clause. However, for “senior executives,” employers still can enforce non-compete agreements that were entered into before the Rule’s date effective date.

The Rule’s effective date is 120 days after it is published in the Federal Register, meaning sometime late August 2024 at the earliest.

What is a Non-Compete Clause?

Under the FTC’s Rule, “non-compete clause” is defined to include any term or condition of employment that prohibits, penalizes or prevents a worker from either: (1) seeking or accepting another job in the United States after the conclusion of employment; or (2) operating a business in the United States after the conclusion of their employment.  The Rule makes it clear that non-compete clauses include provisions in contracts and workplace policies, whether the contract or policy is written or oral.

Who is a Senior Executive?

The Rule defines “senior executive” to mean someone who (1) was in a “policy-making position,” and (2) earned annual compensation at the rate of at least $151,164 per year.  It deems a “policy-making position” to include the company’s president, chief executive officer and any equivalent role, and anyone else with policy-making authority.

Under the Rule, “policy-making authority” means having the “final authority to make policy decisions that control significant aspects of a business entity or common enterprise.” However, it expressly does not include authority limited to merely advising or exerting influence over those types of policy decisions, or having final authority to make policy decisions only with respect to the company’s subsidiary or affiliate.

Limited Exceptions to the Non-Compete Ban

The FTC’s Rule includes a limited exception to the ban on non-compete provisions when the provision stems from the bona fide sale of a business, the sale of the employee’s ownership interest in a business, or the sale of all or substantially all of the assets of a business.

In addition, the Rule does not apply to a violation of a non-compete provision that occurred before its effective date.  In other words, it still allows employers to pursue legal claims against employees who violated a non-compete agreement before August 21, 2024.

Employers Must Notify Employees Their Non-Compete Provisions Are Void

In addition, the Rule requires employers to inform workers who previously entered into non-compete provisions that it cannot and will not be enforced against them.  The FTC has created a form notice that employers can use to meet this requirement.

Contact an Employment Lawyer

If you would like to understand how this new Rule will impact the non-compete provision you previously signed, or the one your employer is currently asking you to enter into, then we recommend you contact an experienced employment lawyer to discuss your rights.

At Rabner Baumgart Ben-Asher & Nirenberg, P.C., we are dedicated to representing employees in New Jersey and New York. We welcome you to contact us online, or to call us at (201) 777-2250.

You can read the full Rule on the FTC’s website.  It is expected to face legal challenges, so stay tuned.

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