Mid-Year 2024: Non-Competes

Final rule effective: 09.04.24 (120 days after publication in the Federal Register)

• Broadly bans all true non-compete clauses — contractual but can also include any workplace policy, whether oral or written.
• 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” either seeking or accepting work after the conclusion of employment, or operating a business after the conclusion of employment.
• It is possible that non-disclosure agreements, training repayment agreement provisions, and non-solicitation agreements that are overbroad and “function to prevent” a worker from seeking or accepting other work or starting a new business after employment ends could be barred by the final rule, depending on the precise language of the agreements and the surrounding facts and circumstances.
• Notice requirement: Although the final rule does not contain a rescission requirement, employers must give notice to workers who entered into a non-compete clause that the non-compete provisions are unenforceable.
• Coverage: All current and former workers, regardless of which entity hired or contracted with them to work and regardless of the worker’s position, title, or status, are covered by the final rule.
• Non-compete clauses entered into with “senior executives” (workers who are in a “policy-making position” and earned at least $151,164 annually) prior to the effective date remain enforceable.
• Generally, garden variety non-solicitation clauses are not covered by the final rule.

Other considerations

• FTC has limited jurisdiction.
• The final rule expressly incorporates two limited exceptions for the “bona fide sale” of a business entity or its operating assets and “where a cause of action related to a non-compete clause accrued prior to the effective date.”