L&E Legal Alert – FTC Issues Final Rule Banning Non-Compete Clauses Nationwide

On April 23, 2024, the Federal Trade Commission (FTC) issued the Non-Compete Clause Rule to address concerns regarding the fairness of non-compete clauses (“non-competes”). The final rule establishes that non-compete clauses constitute an unfair method of competition and thus employers will be unable to require any such agreement in the future. 

However, the final rule also recognizes the existence of non-compete agreements that were entered into before the effective date. In handling these pre-existing agreements, the rule takes a nuanced approach. Specifically, it differentiates between non-competes involving senior executives and those involving other employees.  

For senior executives, the rule permits existing non-compete agreements to remain in force, acknowledging the unique circumstance often surrounding such agreements and the potential implications of altering them abruptly. On the other hand, for non-competes involving other employees who are not considered senior executives, the final rule imposes stricter limitations. It renders existing agreements unenforceable after the effective date, signaling a shift towards greater employee mobility.  

With the implementation of this Non-Compete Clause Rule, the regulatory landscape surrounding non-compete agreements is undergoing significant changes. The final rule is to become effective 120 days after its publication in the Federal Register. In the meantime, we expect to see companies challenge the new Rule in Federal Court questioning whether the FTC has rule-making authority to prohibit non-competes nationwide.   

Stay tuned with our Labor and Employment practice alerts, as the team will provide updates on any future developments and is always available to support your business with any questions or concerns regarding this topic.  

Please contact us at labor@estrellallc.com.