FTC's Final Rule Effectively Bans All Non-Competes

Attention all Employers – you may soon have to tear up your employees’ non-compete agreements. Yesterday, the Federal Trade Commission (FTC) issued a Final Rule that bans non-compete agreements for virtually all employees. The Final Rule’s effective date will take place 120 days after it is published in the Federal Register. This means that after this date, existing non-compete agreements will be unenforceable and new agreements will be illegal. The only exception to this new reality is that existing non-compete agreements for “senior executives” will still be enforceable. Senior executives are defined in the Final Rule as an individual who earns more than $151,164 annually and sits in a policy-making position. Based on this threshold, the exception will only affect an estimated one percent of U.S workers. In addition to non-compete agreements’ newfound illegality, Employers will also be required to provide notice to current and former workers who are subject to existing non-compete agreements and inform these workers that the Employer will not enforce them.

In the Final Rule, the FTC found that non-compete agreements are an unfair method of competition. Therefore, the overall logic behind the Final Rule was to promote competition, increase wages, foster new businesses, and provide employees the choice to work where they please. The FTC also noted that Employers have alternative methods that allow them to protect proprietary information and retain employees which include trade secret laws, non-disclosure agreements, and increased wages. We expect a number of legal challenges to the Final Rule in the federal courts. As such, until the challenges finish their journey through the federal courts, employers can continue to keep their non-compete agreements in place and continue to utilize them to protect their legitimate business interests.

For questions regarding FTC’s Final Rule or any other labor and employment matter, please contact any of the attorneys at Hoffman & Hlavac. To stay updated on key labor and employment law developments that affect your workplace, be sure to subscribe to this blog and follow us on social media!