FTC Adopts Final Rule Banning Employment Non-Compete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) adopted its long-awaited final “Non-Compete Rule,” (the “final rule”) imposing a comprehensive ban on the use of new non-compete agreements with all workers, including senior executives. The final rule covers all types of businesses across nearly all economic sectors, except employers not subject to the FTC’s jurisdiction, including certain financial institutions, common carriers and air carriers, and certain non-profit organizations. The FTC’s final rule, amounting to a sweeping ban on the use of new non-compete employment agreements, will have an effective date of 120 days after publication in the Federal Register, which is expected shortly. Litigation regarding enforcement of the regulation has already been filed. Here are highlights of the FTC’s final rule:  

      • It is an unfair method of competition, and therefore a violation of Section 5 of the Federal Trade Commission Act, for employers to impose new non-compete agreements on all workers, including senior executives, regardless of the title or position of the worker at issue, after the final rule’s effective date.
      • A “worker” is broadly defined as a person “who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status under any other State or Federal laws, including, but not limited to, whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides service to a person.” The final rule clarifies that the term “worker” also includes a person who works for a franchisee or a franchisor, but specifically does not include a franchisee in the context of a franchisee-franchisor relationship.
      • Existing non-compete agreements in effect as of the effective date of the final rule are permitted to treat “senior executives” differently than all other workers. The final rule defines “senior executives” as workers earning more than $151,164 annually who are in a “policy-making position” for the employer. For all such senior executives, existing non-competes can remain in force following the effective date of the final rule.
      • Significantly, for all workers other than senior executives, existing non-compete agreements will no longer be enforceable after the effective date of the final rule.
      • The final rule does not apply to non-compete agreements entered into by a person as part of a sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets. Private parties completing such a transaction may still impose non-compete agreements as a condition of the transaction.
      • The FTC’s final rule may be accessed here.

Please contact Tedd Warden at (312) 775-3616 or [email protected] for more information or with any inquiries.

 

 

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