FTC Bans Non-Compete Agreements

The long-awaited Federal Trade Commission (“FTC”) rule banning non-compete agreements has finally arrived.  On April 23, 2024, the FTC issued its final rule.  As a justification for the outright ban, the FTC cites protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.

The FTC estimates that this ban will result in the formation of an additional 8500 businesses each year.  Additionally, the FTC estimates higher wages for workers and lower health care costs over the next decade.  Finally, the FTC anticipates the filing of an additional 17,000 to 29,000 more patents each year for the next 10 years.

The new rule makes existing non-compete agreements for the vast majority of workers unenforceable.  The only surviving non-compete agreements are those for senior executives, defined as workers earning more than $151,164 annually and who are in policy-making positions.   While existing non-compete agreements for senior executives remain enforceable, future agreements for this section of the workforce are prohibited just like all other workers.

What do employers need to do with respect to existing non-compete agreements for the average worker?  The rule requires them to send notices to workers bound by existing non-compete agreements stating that the agreements will not be enforced against them in the future.  The FTC provided model language in the final rule that employers can use when drafting these notices.

Now that non-compete agreements are unavailable, employers must rely upon trade secret laws and non-disclosure agreements to protect employer’s sensitive and/or proprietary information.  The FTC also suggests that employers protect their information by retaining their workers with wage increases and improved working conditions.

The final rule will take effect 120 days after publication in the Federal Register.