The Death of Non-Compete Agreements?
New Rule
On Tuesday, April 23, 2024, federal regulators adopted a new rule that effectively institutes a nationwide ban on new noncompete agreements.
According to the Federal Trade Commission (“FTC”), an estimated 30 million people — or one in five U.S. workers — are bound by noncompete restrictions.
The FTC voted 3-to-2 approve the new rule, which will ban noncompetes for all workers when the regulations take effect in 120 days. For senior executives, existing noncompetes can remain in force. For all other employees, existing noncompetes will become enforceable.
Legal Challenges
It is highly likely that the new rule will be challenged in court. Some groups, such as the U.S. Chamber of Commerce, have called the new rule "blatantly unlawful.”
In response, the FTC stated that -
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,. Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”
Effect on Existing Non-Compete Agreements.
Nothing changes for existing non-compete agreements for 120 days, until the rule takes effect. Additionally, the commission's final rule does not nullify existing noncompetes with respect to senior executives, who are defined as those earning more than $151,164 a year and who hold a policy-making position. Those executives are much more likely to negotiate the terms of their compensation, according to regulators.
Still, the FTC is banning new noncompetes for senior executives on the grounds that the agreements stifle competition and discourage employees from creating new businesses, potentially harming consumers.
Stay tuned, this is not over yet but a sea change appears to be on the horizon.
Remember – Be Smart. Be Legal.
Disclaimer – Yes, I’m a lawyer, but I’m not your lawyer. All information in this post is provided for educational purposes only and should not be considered legal advice for any person or specific situation.