Thought Leaders: The Federal Trade Commission new non-compete rule in effect
By Frederick J. Steimling, Esq. - Otis and Bedingfield, LLC —
The Federal Trade Commission (FTC) proposed the Non-Compete Clause Rule on January 19, 2023, under sections 5 and 6(g) of the FTC Act. After a comprehensive review of empirical research and over 26,000 public comments, the FTC adopted a final rule addressing non-compete clauses.
The issuance of this final rule declares that entering into non-compete clauses with workers after the rule’s effective date of September 4, 2024, is an unfair method of competition, thus banning new non-competes.
For existing non-compete agreements, the rule differentiates between senior executives and other workers. Non-competes with senior executives remain enforceable, while those with other workers become unenforceable after the rule’s effective date. Employers must notify affected workers that their non-compete agreements are no longer valid, with model language provided to facilitate compliance.
The rule defines a “non-compete clause” as any employment term that restricts a worker from seeking new employment or operating a business post-employment. It covers both written and oral agreements and applies to all workers, including employees, independent contractors, interns, and volunteers, but excludes non-competes related to the bona fide sale of a business.
Concerns about non-competes harming competition have grown, supported by empirical research showing that non-competes suppress wages, hinder new business formation, and limit innovation. Despite state efforts to regulate non-competes, their prevalence remains high, with an estimated 30 million American workers affected. Many non-competes persist even when unenforceable, due to workers’ lack of awareness of their legal rights and the complexity of state laws.
The FTC’s final rule aims to address these issues by standardizing regulations across states and ensuring fair competition in labor and product markets. The rule includes a severability clause to ensure its continued effectiveness even if parts are invalidated by a court.
If you have questions about non-compete agreements, you should contact an experienced business attorney in your area.
