On April 23, 2024, the Federal Trade Commission (FTC), in a 3 to 2 vote, approved the issuance of the final rule banning non-competition clauses because they are an unfair method of competition and therefore a violation of Section 5 of the FTC Act. Under the final rule, existing non-competition clauses are no longer enforceable after the rule’s effective date, which is 120 days after publication in the Federal Register, unless the worker is a senior executive. The rule defines senior executive as a worker who earns more than $151,164 annually (includes salary, bonuses and/or commission) and is in a policy-making position.

With regard to workers with existing non-competition clauses who are not senior executives, the employer must provide notice that they will not enforce any non‑competition provision against them.

The final rule will most likely face legal challenges. However, since there is uncertainty surrounding the legality of this rule and it requires employers to provide notice to non-senior executives subject to non-competition clauses, employers should identify those who must be provided notice and determine what the notice will entail. Further, employers should review existing agreements with non‑competition clauses or similar provisions to determine whether they function as a non‑competition clause and consider legal alternatives to protect customer and company relationships, trade secrets and confidential information.

If you have any questions about this rule or need any assistance, please contact our Labor & Employment team.

Any information included here or through our website is presented solely for general informational purposes and is not in any way intended as legal advice, is not a substitute for getting actual legal advice from an attorney, and should not be acted upon as legal advice without first seeking qualified professional counsel specific to your needs and situation. Additionally, by providing this general information and the information on our website, no attorney-client relationship is created.

FTC Votes to Ban Non-Competition Clauses

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