Federal Trade Commission Issues Final Rule Prohibiting the Use of Non-Compete Clauses with Workers

On April 23, 2024, the U.S. Federal Trade Commission (FTC) published a Final Rule that generally prohibits any entity under the jurisdiction of the FTC from using post-employment non-compete clauses with workers, except for existing non-compete clauses with a very limited population of “senior executives.” This ban on non-compete clauses will apply retroactively from the effective date of the Final Rule, which will be 120 days after it is published in the Federal Register.

Following the effective date, it will be considered unfair competition for an employer to 1) enter into a new non-compete clause with any worker, 2) attempt to enforce an existing non-compete clause with any worker other than a senior executive, as defined by the FTC, and 3) represent that a worker is subject to a non-compete clause (other than a senior executive with a pre-existing non-compete clause).

Employers should note that prior to the effective date, they may still enter into new non-compete clauses with senior executives, as the FTC has defined. Accordingly, employers should consider whether to enter into non-compete clauses with any senior executives currently employed without such post-employment restrictions in place.

Employers are also advised to review their restrictive covenant agreement templates to ensure that when the Final Rule goes into effect, their non-solicit and non-disclosure covenants are narrowly tailored to avoid being subject to the Final Rule.

Our Executive Compensation & Employee Benefits and Labor & Employment teams will continue to analyze the Final Rule and monitor further developments. If you have any questions regarding the foregoing or non-competition or restrictive covenants agreements generally, or would like assistance in evaluating your existing restrictive covenant arrangements, please contact us.

For more details regarding the Final Rule, read our Client Alert below.