federal trade commission noncompete ban - what you need to know

On April 23, 2024, the Federal Trade Commission (FTC) issued a new rule banning noncompete clauses in employment contracts. Allen, Stahl + Kilbourne is closely monitoring challenges to the rule.

What the Rule Says

A noncompete agreement is an employment contract or clause within a contract that restricts current or former employees from working with a competitor for a certain period after their employment ends. The FTC’s new rule will apply to all existing noncompete agreements with a limited exception for executives earning more than $151,164.00 in the preceding year. The rule bans noncompete agreements in new employment contracts with no exception. Importantly, the rule does not apply to nonprofit organizations.    

Challenges to the Rule and Effective Date

Although the FTC’s noncompete rule is scheduled to take effect on September 26, 2024, several organizations have filed challenges to the rule’s legality in federal court. These challenges center primarily on the argument that the FTC exceeded its authority in issuing the rule. Employers should continue to monitor this rapidly evolving situation. 

What You Need to Do

Although there is uncertainty surrounding the long-term survival of the FTC’s noncompete rule, all employers with noncompete language in their employment contracts should proceed as though the rule will take effect on September 26, 2024. Beginning now, employers should plan to remove noncompete language from their contracts.

Alternatives to Noncompete Agreements

Importantly, other restrictive covenants such as nondisclosure agreements and non solicitation agreements are still allowed. Nondisclosure agreements – a.k.a. trade secrets or confidentiality agreements – are particularly important for businesses trying to protect proprietary information. This new rule should not dissuade employers from requiring its employees from entering such agreements. They can be effective tools in preventing departing employees from using certain information to benefit a competitor.  

If you have any questions at all, please do not hesitate to contact Bo Carpenter at bcarpenter@asklawnc.com or Madison Thornton at mthornton@asklawnc.com