FTC Issues Final Rule Deeming Almost All Noncompete Agreements Unenforceable

On April 23, 2024, the Federal Trade Commission (“FTC”) issued a Final Rule which bans noncompete clauses for all but a few employees. If the rule goes into effect, even existing noncompetes for the vast majority of American workers would be deemed unenforceable.  The only exception is for “senior executives,” which is defined as an employee who was in a “policy-making position” and who received a total compensation of at least $151,164.   For senior executives, noncompetes already in effect at the time the Final Rule takes effect can remain in effect.  However, once the rule goes into effect, all noncompetes, whether or not involving a senior executive, would be deemed unenforceable.

The Final Rule also requires employers to provide notice to employees other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

In issuing the rule, FTC Chair Lina Khan said:  “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned. The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The Final Rule will become effective 120 days after it is published in the Federal Register, unless it is blocked by a court in the meantime.  And that is certainly a possibility, as several groups, including the powerful United States Chamber of Commerce, have vowed to file suit to block the rule from taking effect, saying that the FTC overstepped its authority in issuing the rule.

The attorneys at Chilivis Grubman have represented businesses of all types and sizes in connection with employment and contract-related disputes and litigation.  If you need assistance with such a matter, please contact us today.