On April 23, 2024, this past Tuesday, the Federal Trade Commission (“FTC”) voted 3-2 on a nationwide non-compete ban (the “Non-compete Ban” or the “Rule”). This impactful decision raises many questions for employers. Who does the law apply to? Are there exceptions? When does the law go into effect? Below we will discuss the Rule and answer some of these questions.
Background
The FTC has been working to ban non-competes for some time now. The FTC issued a proposed rule on non-competes in January 2023, after which there was a 90-day public comment period. After a wave of public comments came in (more than 26,000 public comments), the FTC reviewed these comments, made changes to the proposed ban, and ultimately voted on and approved the final Non-compete Ban on April 23, 2024, over a year later.
Who does the Non-Compete Ban Apply to?
The Rule would function as a nationwide, blanket ban on all worker non-competes, including highly paid executives. All current and former workers and employers are covered by the Rule. The Rule applies to both future and pre-existing non-competes, however there is carve-out for pre-existing non-competes for “senior executives,” which will remain in effect. The Rule generally does not apply to non-compete agreements between businesses.
Are there Exceptions?
One exception is a non-compete used in the bona fide sale of a business. Another exception is “where a cause of action related to a non-compete accrued prior to the effective date,” meaning when a non-compete was violated prior to the Rule going into effect.
When does the Non-Compete Ban go into Effect?
The Non-compete Ban goes into effect 120 days after publication in the Federal Register. On April 24, 2024, however, the U.S. Chamber of Commerce filed a coalition lawsuit seeking to block the Rule and requesting injunctive relief. If an injunction is granted, it will delay the effective date of the Rule.
Next Steps for Employers
For questions regarding how–and whether–to use non-competes, contact our office for a consultation with one of our Fairfax Civil Litigation Attorneys. For those employers that continue to use non-competes, these agreements should be narrowly and reasonably drafted with respect to geographical, temporal, and substantive limitations. Meaning, the non-compete should not be geographically broader than necessary, it should not ban competition for an unnecessarily long period of time, and it should be limited to activities that are specific to competition with the employer. Employers should also keep in mind, however, that the Non-compete Ban may become effective, and that it would essentially invalidate all existing non-competes (with the exception of the “Senior Executives” non-competes identified above).
