Federal Trade Commission Issues a New Rule on Noncompete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to ban noncompete agreements that employers use to prevent workers from working for competitors or starting a competitive business after leaving their former employer. 

The FTC estimates that 18% of the workforce in the United States is restricted by noncompete agreements, which amounts to roughly 30 million people.  The effect of the ban will prevent employers from requiring their employees—from unskilled laborers to senior level managers—to enter into such agreements and will require employers to notify their current and past employees that existing noncompete agreements will not be enforced.  While most existing noncompete agreements will need to be scrapped, a change from the original proposal will allow agreements to remain in effect for senior executives.

The new rule will go into effect 120 days after it is published in the Federal Register.  FTC Commissioner Rebecca Slaughter remarked after the vote, “It is so profoundly unfree and unfair for people to be stuck in jobs they want to leave, not because they lacked better alternatives, but because noncompetes preclude another firm from fairly competing for their labor, requiring workers instead to leave their industries or their homes to make ends…”  Pro-business groups opposing the rule are expected to take legal action to block it from being implemented, claiming it to be unconstitutional and a violation of companies’ rights to protect their secrets and parties’ freedom to contract, among other things.