FTC Announces Ban On Non-Compete Agreements: An Overview of the Rule and What is Likely to Come Next

On April 23rd, 2024, the Federal Trade Commission (FTC) announced a new final rule that largely prohibits the use of non-compete agreements by employers. While there are some limited exceptions, the rule in its current form would eliminate most non-compete agreements on the grounds that they reduce competition and employee wages. Litigation is already starting. As reported by The Wall Street Journal, the United States Chamber of Commerce has filed a lawsuit to block the regulation. In this article, you will find an overview of the FTC’s rule and what comes next.

What You Need to Know About the FTC Ban On Non-Competes and the Lawsuit to Stop It 

The FTC began the process of restricting the use of employee non-compete agreements when it initiated rule-making in early 2023. The final rule as laid out by the federal agency will dramatically scale-back the use of non-competes. It is effectively a near-outright ban for non-competes by for-profit companies nationwide. However, the rule has not yet taken effect and a lawsuit has been filed to try to stop it. Here is an explanation of key points employers and employees should know:

• The Rule Bars Most Employee Non-Competes Among For-Profit Employers: The FTC’s proposed rule prohibits for-profit employers from imposing non-compete clauses on virtually all employees. There is a small exception for employee-owners.
• The Rule Does Not Apply to Nonprofit Organizations: Nonprofit organizations are exempt from this rule. The FTC lacks jurisdiction to impose this regulation on the nonprofit sector.
• The Rule Will Take Effect 120 After Publication: Once finalized, the rule will take effect 120 days after its publication in the Federal Register. With no legal challenges, it would take effect in September of 2024.
• The Rule Invalidated Most Existing Employee Non-Competes: Existing non-compete agreements must be rescinded, and employers are required to notify both current and former employees that these agreements are no longer effective. There is a narrow exception for senior executives. Those pre-existing non-competes could stand.
• The Lawsuit to Stop the Rule is Likely to Slow Down the Process: Significant opposition from various business groups and states likely means the implementation of the rule will face delays. Lawsuits have already been filed to block the implementation.
• The Supreme Court May Need to Determine its Validity: Given the stakes of the case, it is probable that the Supreme Court will need to determine the validity of the FTC’s authority to enforce such a broad regulation barring employee non-compete agreements.

Though the FTC has released its final rule, there is still a long way to go before this regulation will become federal law. Our employment law firm will keep a close watch on any developments.

Get Help From Our Florida Employment Attorney Today 

Employment law is complicated. The FTC’s proposed ban on non-compete agreements could have major ramifications for employers and employees in Florida. If you have specific questions about a non-compete agreement, please do not hesitate to contact a Florida employment lawyer today.