FTC Approves New Rule Banning Non-Competes

On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 along party lines to approve a new rule banning non-compete agreements for all workers. The rule defines non-competes broadly as contractual terms or workplace policies that restrict a worker from seeking or accepting work in the United States with a different person or operating a business in the United States after the conclusion of employment.

The ban applies retroactively to prior agreements, except for those involving senior executives earning more than $151,164 a year in a policy-making position. Employers must notify affected workers that their non-compete agreements are no longer enforceable. The ban extends to independent contractors, externs, interns, volunteers, apprentices, and sole proprietors providing a service, but excludes non-competes in bona fide sales of business entities or in franchisor-franchisee relationships. It is also important to note that the rule does not prohibit non-disclosure and confidentiality agreements.

Legal challenges to the rule are expected, with the U.S. Chamber of Commerce planning to sue, arguing that the FTC lacks the authority to implement the rule, that non-competes are not categorically unfair, and that the rule is arbitrary.