Federal Trade Commission Bans Employee Noncompete Agreements

April 24, 2024

On April 23, 2024, the FTC finalized its comprehensive Non-Complete Clause Rule banning employer noncompete agreements with limited exceptions. The effective date of the ban is 120 days after publication of the final rule in the Federal Register.

While there are likely details to the 570-page rule that still need to be explored, the FTC announced the following:

  • All noncompete agreements signed after the effective date are banned regardless of industry or type of worker.
  • Existing noncompete agreements signed by non-senior executive employees prior to the effective date are banned beginning with the effective date. 
  • Existing noncompete agreements signed by senior executive employees (employees earning more than $151,164 annually who are in a policy-making position) signed prior to the effective date are not affected by the rule. 
  • Noncompete agreements may still be used in the sale of a business.

Importantly, the rule is not currently in effect.

The U.S. Chamber of Commerce has called the rule an “Unlawful Power Grab” and has announced that it intends to sue to block the implementation of the rule. Hilger Hammond will continue to follow any litigation and its impact on the rule.

In the meantime, Hilger Hammond recommends that you identify the noncompete agreements your company currently has active to determine which clauses are banned, and consider whether the agreements contain well drafted non-solicitation and/or confidentiality clauses to protect your legitimate business interests. Also, review the distribution of proprietary information and trade secrets within your organization and implement procedures to limit this information to only those employees with a need for access. Although formal rescission of the unenforceable agreements is not required by the rule, notice to employees prior to the effective date of the rule is required.

Reach out to Hilger Hammond regarding the necessary notice required by the rule or if you have any questions or would like additional assistance with updating your employee agreements.

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