FTC Issues New Ruling on Non-Compete Agreements – How will this Affect You or Your Business?

In April of 2024, the Federal Trade Commission (“FTC”) issued a new ruling on the enforceability of non-compete agreements. Over the course of several years including a notice and comment period that contained over 26,000 public comments, the FTC has decided to issue a new rule banning non-compete agreements in most cases.

A non-compete agreement is an agreement between an employer and employee by which an employee is restricted from pursuing work within a similar field, within a set location, for a set amount of time upon leaving employment with the employer. Many supporters of non-competition agreements viewed these agreements as a key way for employers to ensure that they could invest time, energy, and training into employees without great concern that an employee would abruptly leave for a competitor. However, many opponents to these non-compete agreements believed these agreements to be an unfair restriction on an individual’s opportunity to pursue the work of one’s choosing.

So how will this affect you or your business? In short, there is no effect yet. The ruling will not be effective until 120 days after the rule has been posted to the Federal Register. Even if the ruling is posted soon, individuals and businesses will still have several months to adjust before the new ruling is enforced. There will also likely be a challenge to the FTC’s ruling at some point – which could further delay the rule’s enactment.

That being said, there is no harm in getting prepared, and the FTC has provided some early guidance for both individuals and businesses. Predominately, if the rule goes into effect, employers will be required to inform employees subject to non-competes that their non-compete agreement is no longer enforceable. This will be the major issue for most individuals and business with non-compete agreements in place.

However, the FTC has also made it clear that some notable exceptions will remain. For example, non-competes that are the product of the sale of a business will still be enforceable. Non-competes will likewise still be enforceable against “senior executives” who are the key employees at the top of businesses. The rule will also have no effect on agreements relating to the preservation of trade secrets, non-solicitation agreements, and non-disclosure agreements.

Of course, each situation is unique. While we work to stay current on all changes to the legal landscape, we invite you to give us a call to talk to a professional to see how this ruling may affect you.