Federal Trade Commission’s Final Rule to Ban Non-Competes: What You Need to Know

By Shiloh Theberge

What’s happening?

On April 23, 2024, the Federal Trade Commission voted 3-2 to approve a final rule that, if it becomes effective, bans employers’ use of all non-compete agreements with limited carveouts. The final rule is scheduled to go into effect 120 days after it is published in the Federal Register, which is anticipated to occur on May 7, 2024. Importantly, already pending litigation means it is uncertain, or perhaps even unlikely, that rule will actually go into effect.

What does this mean for your business?

Currently, there are six important items of note:

1. There is a narrow exception for non-compete provisions entered into in connection with a sale of business.
2. The rule does not appear to prohibit non-solicit provisions as long as they are not drafted in such a way that they are actually non-compete provisions.
3. Employers will have to provide written notice to employees who previously agreed to a non-compete provision that it is unenforceable.
4. Existing non-competes with “Senior Executives” as defined by the rule will remain in effect.
5. The rule supersedes all state and local laws to the contrary unless they provide greater protections to employees.
6. The U.S. Chamber of Commerce and other groups have already filed suit challenging the rule and requesting an injunction preventing enforcement of the rule while litigation is pending.

What actions should businesses take now?

Employers should review their existing employment-related agreements containing restrictive covenants, including non-compete and non-solicit provisions, to get a sense of what changes may be necessary. That being said, we would not recommend making any significant changes until there is further progress in the pending litigation.

Employers also should ensure that they are using non-disclosure and proprietary rights agreements, non-solicitation agreements, and other methods to protect their business.

Bernstein Shur’s attorneys will provide further updates. For more information about the status of noncompete agreements, reach out to Shiloh Theberge, Shareholder, Chair, Labor & Employment Practice Group, at stheberge@bernsteinshur.com.