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  • Writer's pictureDouglas Nelson

(Almost) No More Non-Competes, Says FTC

If you have ever signed an employment agreement—as an employer or an employee—then you have likely read a non-compete provision. Non-competes are commonly used to protect against former employees working for competitors. Often part of employment and severance agreements, non-competes can restrict the industry, entities, and region in which a former employee can work for a period of time after termination.


Despite their widespread use by employers of all shapes and sizes, non-competes may soon disappear. On April 23, 2024, the Federal Trade Commission (FTC) issued a new rule banning non-compete clauses that apply to nearly all workers. The FTC declared that non-competes are an “unfair method of competition” under Section 5 of the Federal Trade Commission Act and thus unlawful as of the effective date of the rule, set for 120 days after publication in the Federal Register.


man in suit wagging his finger

What the Rule Does

The rule largely bans non-compete provisions. No new non-competes can be created or enforced, and existing provisions cannot be enforced against employees. The rule also requires employers to inform their employees subject to a no-longer-enforceable non-compete of the inability to enforce the provision as of the effective date.


At the same time, the new rule does allow some room for non-competes to remain for certain employees and transactions.


First, the rule allows existing agreements for “senior executives”—defined as workers earning more than $151,164 a year and working in a “policy-making position”—to continue, but no new non-compete provisions can be made or enforced for any workers. “Policy-making positions” include officers of companies and equivalent employees who can exercise final authority over “significant aspects” of a business and its operations (not merely advise or influence policy-making in the organization).


Second, the rule allows non-compete provisions in agreements to sell a business entity, which may restrict owners of the selling business from competing with the new combined business. The FTC determined that non-competes in sales of businesses are already addressed under state law and could not be evaluated properly in this rulemaking. It also declined to require an ownership threshold for owners to whom non-competes can apply, nor a dollar value of transactions under this exception.


What Will This Mean for My Business?

The FTC based its decision on claims that non-competes cost workers opportunities and income by restricting freedom of movement from position to position. It also relied on claims that non-competes prevent new businesses from forming due to the lack of talent able to jump to start-ups and new ventures.


But employers also have an interest in protecting their business in order to compete, such as by protecting against their information, clients, and strategy being taken to industry competitors. Now employers will have to designate their “senior executives” among their employees, and smaller businesses may run the risk of losing talent and business to larger companies able to outspend them.


If your business has used non-compete provisions or currently uses them, you may need to notify employees of a non-compete provision’s unenforceability. You may also need to clarify to your “senior executives” that they are still bound to their employment agreements, even if the rule prevents creating new agreements.


For a review of your existing and prospective employment agreements, or if you have questions about whether to include a non-compete in a purchase agreement for a business, contact one of our employment attorneys at Moustakas Nelson LLC.


We can evaluate whether you can use existing non-competes for executives and what notification you may need to supply to your employees before the effective date of the rule. Call our office, send us an email at info@mnlawllc.com, or contact us through our website for a discussion of your business and its use of non-competes.

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