On May 7, the Federal Trade Commission (FTC) published a final rule banning the enforcement of nearly all noncompete clauses in employment agreements nationwide (89 FR 38342). This new rule will have sweeping effects across all sectors of the economy, if it survives court challenges that have already been filed (see, e.g., Chamber of Commerce of the United States of America v. FTC, 6:24-cv-00148 (E.D. Tex., April 24, 2024).
What Is the New Rule?
The FTC’s new rule makes it an unfair method of competition to enter into new noncompete clauses or enforce existing noncompete clauses after Sept. 4, 2024 (120 days after publication of the rule in the Federal Register), with very limited exceptions: existing noncompete clauses with senior executives can remain in force, though new ones are not allowed, allowing for a sunset period; and noncompete agreements tied to the sale of a business entity can remain valid. Causes of action for breach of a noncompete agreement accruing prior to the Sept. 4 deadline can still be enforced, and the FTC does not consider it an unfair method of competition to attempt to enforce a noncompete where there’s a good-faith, though erroneous, basis to believe the rule is inapplicable (such as disagreements over whether an employee qualifies as a “senior executive,” which is defined in the rule as a worker earning a salary of at least $151,164, placing them in the top 15th percentile nationally; and who is in a “policy-making position,” typically an officer of a corporation or with similar authority).
