On April 23, 2024, the Federal Trade Commission ("FTC") issued a Final Rule banning noncompete clauses nationwide. The Final Rule is expected to become effective September 4, 2024. According to the FTC's summary, the final rule provides that it is an unfair method of competition—and therefore a violation of Section 5 of the Federal Trade Commission Act—for persons to, among other things, enter into non-compete clauses with workers on or after the final rule’s effective date. With respect to existing non-competes—i.e., non-competes entered into before the effective date—the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date. The FTC defines a senior executive as a worker who in in a policy-making position and who receives total annual compensation of at least $151,164 in the preceding year.
The power of the FTC to take this action will be challenged in court. On the same day the Final Rule was announced, the US Chamber of Commerce stated:
“The Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive. This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy. The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked."
Given the FTC's Final Rule, now is the time for both employers and employees to take a fresh look at noncompete issues:
As part of an overall evaluation, employers should review their current procedures and contract clauses with an eye toward deletion or restriction of noncompete clauses, along with concurrent strengthening of confidentiality, non-solicitation and trade secret clauses and policies; employees should raise, address and ask questions about noncompete issues as part of new employment negotiations, upon dismissal and at any time employment discussions take place.
About the Author
Tim Warner has more than thirty (30) years of experience as a Lawyer, Mediator and Arbitrator (in person and online) predominately handling business, commercial and employment matters, while also handling healthcare, consumer, probate and personal injury matters. Tim serves on multiple American Arbitration Association Panels and has been recognized by the National Academy of Distinguished Neutrals. He previously served as the Chairman of the Cleveland Bar Association’s Litigation and Alternative Dispute Resolution Sections.
