FEDERAL TRADE COMMISSION FINAL RULE BANNING NON-COMPETE AGREEMENTS

OVERVIEW

The Federal Trade Commission (FTC) Final Rule was published April 23, 2024.
The Federal Trade Commission Final Rule bans non-compete agreements in the employment context.
It simply prohibits restrictions on workers from working for themselves or others after employment.
Litigation is being filed to prevent implementation.
Preempts less restrictive state law.

The FTC Rule bans terms or conditions of employment that penalize, prohibit or prevent a worker:

From accepting work in the U.S. with another “Person” after employment.
Operating a business in the U.S. after employment.
- “Person” is broadly defined.
- “Worker” is broadly defined.
Ban applies to existing and future agreements with the exception of existing agreements with Senior Executives.
- “Senior Executive”
  - Policy Maker.
  - At least $151,164 annualized total income per year.

Must provide written notice to all workers with unenforceable agreements of unenforceability.

It does not apply to industries outside of the Federal Trade Commission’s authority such as non-profits, airlines, banks, credit unions and insurance companies according to commentators.
It does not apply to other restrictions in employment context such as non-solicitation agreements and confidentiality agreements.
It does not apply to non-competes in other contexts, such as in connection with a sale of business.

Assemble all agreements currently in effect that may contain non-competes.
Kemp Klein will review agreements to determine if effected by Rule and, if so:
- Work with you to fix agreements, or prepare notice of unenforceability.
- Notice not best alternative if can be avoided.

The following outline provides a high-level overview of the FTC’s proposed final rule:

The final rule bans new noncompetes with all workers, including senior executives after the effective date.
Specifically, the final rule provides that it is an unfair method of competition—and therefore a violation of Section 5 of the FTC Act—for employers to enter into noncompetes with workers after the effective date.
For existing noncompetes, the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing noncompetes can remain in force. Existing noncompetes with workers other than senior executives are not enforceable after the effective date of the final rule.
Fewer than 1% of workers are estimated to be senior executives under the final rule.
Specifically, the final rule defines the term “senior executive” to refer to workers earning more than $151,164 annually who are in a “policy-making position.”