Important Update on FTC’s New Rule Regarding Non-Compete Clauses

by | Apr 25, 2024 | Business & Commercial Litigation, Business Services, Labor and Employment

On April 23, 2024 the Federal Trade Commission announced a significant development that could impact your business, specifically regarding your employment contracts and policies. The FTC rule, if successfully enacted, could bring about substantial changes to the use of non-compete clauses in your agreements. Below is a summary of the key points of the FTC’s Non-Compete Clause Rule:

  1. Ban on Non-Compete Clauses: The FTC’s final rule effectively bans non-compete clauses across the board, with a narrow exception carved out for current non-compete agreements involving senior executives. This is a pivotal shift in employment law that could affect many businesses and their contractual relationships with employees.
  2. Effective Date: The rule will become effective 120 days after its publication in the Federal Register, granting businesses a limited window to review and adjust their current policies and contracts accordingly.
  3. Definitions and Conditions for Senior Executives: The rule also lays out specific definitions and sets different conditions related to non-compete clauses for senior executives, acknowledging the unique role and impact these individuals have within a business structure.
  4. Exclusions: It’s important to note that the rule excludes existing non-compete agreements related to the sale of a business and causes of action that arise before the rule’s effective date. This distinction is crucial for transactions and agreements already in place.
  5. Preemption of State Laws: While the rule can preempt state laws that are in conflict with its provisions, it does not affect non-conflicting state laws. Businesses must be mindful of both federal and state regulations in this area.
  6. Rationale Behind the Rule: The FTC has articulated its rationale for this rule, highlighting concerns over workers’ rights and the impact of non-compete clauses on labor mobility. The agency aims to foster a more dynamic and competitive labor market by eliminating these restrictive clauses.
  7. Legal Authority and Rule Development: Lastly, the FTC has based this rule on its legal authority to prevent unfair methods of competition. The development of this rule reflects the FTC’s ongoing efforts to address practices that they view as harmful to the competitive process and labor market.

Implications for Your Business: This new rule underscores the need for your business to review and possibly revise existing employment contracts and company policies, especially those concerning non-compete agreements with your employees. It’s imperative to ensure compliance with the new rule while still protecting your business interests.

While this Final Rule will most certainly be the subject of legal challenges, we recommend conducting a comprehensive review of your current non-compete agreements and employment policies to identify any adjustments needed in light of this new regulatory landscape. Depending on the specifics of your business and your workforce, adjustments may range from minor amendments to more substantial contractual overhauls.

In light of these changes, it would be prudent to seek professional legal advice to navigate this transition smoothly and ensure your business practices remain compliant while safeguarding your competitive edge.

More about Schuyler D. Geller

More about Schuyler D. Geller

Schuyler D. Geller is a member of the firm’s litigation and business practice groups where he represents businesses and individuals in complex commercial, regulatory, and employment litigation. Prior to joining Burke Costanza and Carberry, Mr. Geller practiced with a boutique litigation firm in Chicago for ten years.