Back in January 2023, we posted a Blog about the Federal Trade Commission’s (FTC) proposed Rule to ban noncompete clauses. See: https://www.fmr.law/blog/2023/january/ftc-issues-proposed-rule-that-would-ban-noncompe/ That rule has now become final. It will become effective 120 days after publication in the Federal Register.
On April 23, 2024, the FTC issued its final rule, banning employers from limiting their workers’ abilities to work for competitors. This is a major change in employment law that the agency says will help raise wages and increase competition among businesses.
The new rule bars contracts known as noncompetes, which employers use to prevent workers from leaving for a competitor for a specified period of time. The FTC notes the ban on noncompetes will raise wages by forcing companies to compete harder for workers. Employers who want to attract employees will have to focus on improving wages and working conditions.
Here are highlights of the rule from the FTC:
- The final rule bans new noncompetes for all workers, including senior executives after the effective date.
- Specifically, the final rule provides that it is an unfair method of competition—and therefore a violation of Section 5 of the FTC Act—for employers to enter into noncompetes with workers after the effective date.
- For existing noncompetes, the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing noncompetes can remain in force. The final rule defines the term “senior executive” to refer to workers earning more than $151,164 annually who are in a “policy-making position.”
- Existing noncompetes with workers other than senior executives are not enforceable after the effective date of the final rule.
- Under the final rule, employers will have to provide notice to workers bound to an existing noncompete that the noncompete agreement will not be enforced against them in the future.
“The F.T.C.’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market,” according to Lina M. Khan, the FTC Chair. She estimated the decision would lead to 8,500 new start-ups created in a year and boost wages for the average worker by an additional $524 per year.
The ban is good news for Ohio’s working people, but the U.S. Chamber of Commerce has already sued to try to block the ban.
Our attorneys will continue to monitor the significant changes brought by enforcement of this new rule and its impact on workers who currently have noncompete agreements which are soon to be unenforceable.
For more information see:
www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf
https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes