On April 23, 2024, the FTC released their long-awaited ban on non-compete agreements. It is the FTC’s position that non-compete agreements by their very nature limit competition. Under the FTC’s final rule, an employer cannot offer, enforce, or even tell an employee that they are subject to a traditional non-compete agreement. A traditional non-compete agreement prohibits an employee from competing within a particular geographic territory for a period of time post-employment. While the FTC ban is getting a lot of headlines, for a number of reasons, employees should view this Rule with caution.
First, the ban does not apply to non-solicitation agreements and/or confidentiality agreements – it only applies to traditional non-compete agreements. When an employer forces their employees to sign such agreements, they generally include traditional non-compete restrictions, along with both non-solicitation and confidentiality restrictions. Because the FTC ban does not apply to these restrictions, employees will still be subject to the non-solicitation and confidentiality restrictions they agreed to.
Second, the Final Rule will not become effective until 120 days from the date the Rule is published. The Rule explicitly does not have retroactive authority. Therefore, any breach of a non-compete agreement that takes place prior to the Rule’s Effective Date will not be affected by the FTC’s ban on non-compete agreements. If an employee starts competing today in violation of a non-compete agreement, the ban will not save the employee from litigation on that breach.
Third, the Final Rule may never become effective. The US Chamber of Commerce has vowed to bring litigation against the enforcement of this Rule. Therefore, it is very likely that prior to the Rule becomes effective, there will be a nationwide ban on the enforcement of the Rule until the matter can work its way to the US Supreme Court to determine if the FTC has the authority to enact a legislative rule that bans non-compete agreements.
If you have questions about your non-compete agreement or how the FTC’s ban may affect you, please schedule a consultation today!
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