FTC: Non-compete agreements are no longer enforceable

Mickell Summerhays • Apr 24, 2024

Announcement of the new rule has triggered multiple legal challenges that could delay its enforcement.

The Federal Trade Commission (FTC) has approved a rule that would ban the use of non-compete clauses by employers.

The rule defines “non-compete clause” as “[a] term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” taking another job or operating a business post-employment.

The approval was announced April 23, and the rule is set to go into effect 120 days after it is published in the Federal Register. As of this writing, the publication date is unknown.

Going forward, employers are prohibited from entering into new non-competes, even for executives, and must notify workers bound by existing agreements that the non-compete provisions will not be enforced. The FTC is of the opinion that this rule will alleviate burdens on workers and foster a more dynamic and competitive labor market.

The rule includes a few exceptions, such as existing agreements with senior executives and non-competes that exist as part of the sale of a business.

Legal Challenges. The FTC announcement triggered immediate legal challenges. One federal lawsuit seeks to vacate the final rule on the grounds that the FTC does not have the authority to issue the rule and that the rule itself is unconstitutional. Another suit, filed by the U.S. Chamber of Commerce, seeks an injunction that would halt the enforcement of the final rule or extend the effective date of enforcement.

Alternatives. Employers are encouraged to explore alternative methods to protect their interests, such as trade secret laws and non-disclosure agreements (NDAs). These mechanisms offer legal safeguards for proprietary information without the restrictive nature of non-competes.

Customer List Not Necessarily a Trade Secret

Employee Misuse of Confidential Information

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FTC: Non-compete agreements are no longer enforceable

Announcement of the new rule has triggered multiple legal challenges that could delay its enforcement.

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