FTC Final Rule on Non-Compete Ban

Last week (April 23, 2024), the Federal Trade Commission (“FTC”) issued a final rule to prohibit the use of non-compete clauses in certain employer agreements and policies.  The rule will become effective 120 days after it is published in the Federal Register.  The rule also supersedes all state laws and regulations, unless those laws or regulations are more restrictive than the final FTC rule.

The final version of the prohibition of non-compete clauses largely keeps in place the proposed rule published on January 19, 2023.  For some more background on the rule (i.e. employees and employers subject to the regulation (most notably, federally chartered credit unions are excluded from coverage as employers under the rule), communication obligations for impacted employees, the rule’s impact on non-solicitation and non-disclosure clauses, etc.), please visit a previous post on the proposed rule, as well as a podcast on this subject matter.

One notable difference between the final and proposed rules is its application to senior executives (a defined term under the rule).  Senior executives subject to a non-compete clause prior to the effective date of the final rule will remain subject to the terms of that clause, but the prohibition on non-compete clauses extends, with some exceptions, to senior executives as of the effective date of the final rule.  Please note, this is not the case for non-compete clauses with other covered employees under the rule (as mentioned above, covered in a previous post on this rule).

A day after the FTC the final rule was released, a couple of lawsuits were filed challenging the legality of the FTC’s decision to issue the rule.  Please note, the filing of the lawsuits themselves does not impact the current effective date of the rule or, as of this date, its applicability as of that date.  Please continue to check our LinkedIn page for further updates on these lawsuits and any other challenges to this new regulation; we anticipate that this rule will continue to be challenged in court.

If you have any questions about the FTC rule change or any agreements that you think may be affected by this rule change, feel free to contact us.