FTC’s Final Rule Bans Non-Competition Agreements

On April 23, 2024, the Federal Trade Commission (“FTC”) finalized a rule that bans virtually all non-competition agreements between a business and their “workers” (more about what a “worker” is below). The new rule would prohibit businesses from restricting a worker’s ability to work for competitor following the worker’s separation from the business.

This rule is, at present, scheduled to take effect in 120 days after publication, meaning that the earliest that the rule would take effect is August 22, 2024. That said, the rule’s effective date may be pushed further still due to legal challenges that have been filed and will continue to be filed against the rule by pro-business groups.

Assuming the rule does take effect, business should keep the following in mind:

1. Businesses will be prohibited from entering into or enforcing new noncompete agreements with “workers” on or after the rule’s effective date. What is a worker? A worker is an employee, an independent contractor, intern/extern, or volunteer who has performed services for a business.  The important point here is that the FTC’s ban against non-compete agreements extends not only to “employees,” but even to unpaid individuals.
2. The rule, however, has a narrow carve out for workers who are deemed to be so-called “Senior Executives” and those who sell their ownership interest in a business. For these narrow set of workers, a business may enforce a non-compete provision (assuming, of course, that applicable state or local law does not say otherwise). The vast majority of workers, however, fall outside of these narrow exceptions
3. Like California law, the FTC rule would require business to provide written notice of the invalidity and non-enforceability of an existing noncompete provision.

A copy of the FTC’s proposed rule may be found here.

For steps you can take to ensure compliance with the FTC’s final rule, if and when enacted, please contact us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.