The U.S. Federal Trade Commission promulgated a final Rule banning non-compete clauses in contracts with employees on April 23, 2024 (“Rule”). It should become effective 120 days after publication in the Federal Register, on or around August 21, 2024. However, enforcement may be delayed due to legal challenges seeking to invalidate the Rule. If the Rule becomes effective, it will invalidate millions of existing non-compete clauses and put a sweeping ban on new non-competes. Employers may still have a variety of tools to protect their business interests when workers depart.

Here are several key features of the Rule:

  • The Rule bans all new non-competes with workers of any kind, with extremely limited exceptions for non-compete agreements between the seller of a business and the purchaser.
  • The Rule invalidates all existing non-competes with workers, other than senior executives who retain final authority to make policy decisions that control significant aspects of a business (such as the CEO or other C-suite executives). For senior executives, while existing non-competes will remain enforceable, new non-competes will not be permitted. Existing non-competes may still be challenged on a case-by-case basis.
  • Employers are required to provide notice by the effective date to affected workers that the non-compete agreements are no longer enforceable. The Rule provides model language to be used for this purpose. Formal rescission of non-compete clauses or contracts is not
  • “Workers” are broadly defined and include employees, independent contractors, and others who provide a service. However, franchisees in the context of a franchisee-franchisor relationship are not included.
  • The FTC’s Rule would supersede most states’ laws and impose a nationwide ban.

Other restrictive employment agreements, including non-disclosure agreements, non-solicitation agreements, and training-repayment agreements are not subject to the blanket ban, provided they are not functionally equivalent of a non-compete. Employers anticipating the Rule becoming effective, or concerned about the legal uncertainty of court challenges, should review their worker agreements for non-competes that may be invalidated by the Rule and consider the available alternatives to protect their significant business interests when a worker departs.