Breaking News: FTC Bans Non-Competes in Employment Agreements

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FTC Announces New Rule Banning Non-Compete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) issued a new rule that bans non-competes for any individuals who provide work or services to a business or person. The rule makes entering or enforcing into a non-compete with an employee an “unfair method of competition” under Section 5 of the FTC Act. The rule is intended to promote competition, a free economy, and protect the “fundamental freedom of workers to change jobs.” The rule is slated to go into effect 120 days after the rule is published in the Federal Register.

Who Does the New FTC Rule Apply to?

The rule applies to all individuals who work for a for-profit employer, including any worker, whether paid or unpaid, whether they are classified as a W2 employee or a 1099 independent contractor. The ban only affects post-employment non-competes, meaning that employers can still require and enforce a non compete during the term of employment. Under the rule, although employers will be banned from entering into or enforcing non-competes with any workers, there is a carveout allowing enforcement of existing non-competes against workers classified as “senior executives.”

Is My Existing Non-Compete Agreement Enforceable Under the New FTC Rule?

Once the rule goes into effect, the only existing non-competes that will remain enforceable are those for “senior executives,” i.e., workers who both earn more than $151,164, annualized, and who have in a policy-making authority over the business. However, for all other workers, existing non-competes will be unenforceable under the new rule. Employers must also provide notice to its current or past workers that their existing non-competes cannot be enforced. If you are an individual with an existing non-compete agreement, or you operate a business holding a non-compete over your workers, it is crucial to understand that this new rule will impact your current contracts and your future agreements.

Can a Business Enforce New Non-Competes?

Although the rule prohibits non-competes for any workers, this only applies to natural persons. Consequently, non-competes can still be entered into between business entities (Corp., LLC, etc.) to stop the business itself from engaging in competitive activities. Additionally, there are exceptions allowing non-competes in connection with the bona fide sale of a business entity, a person’s ownership interest in the entity, or a sale of substantially all of the business’s assets.

Does the Rule Impact Other Restrictive Covenants?

No. The rule does not apply to other restrictive covenants often included in employment contracts to protect a company’s legitimate business interests, such as trade secrets, confidential information, and client relationships, by restricting certain activities during and after employment terminates. Some common restrictive covenants not impacted by the new FTC rule include (i) non-solicitation, (ii) non disclosure, (iii) non-disparagement, (iv) non-interference, and (v) confidentiality agreements.

What’s Next?

While the rule is slated to go into effect in more than 120 days, it is all but guaranteed that the rule will be heavily challenged in court by a number of employers and organizations. Within hours of the FTC’s announcement, the U.S. Chamber of Commerce filed suit against the FTC in a Texas federal court in an attempt to block the rule. As the employer-worker relationship radically changes, individuals and companies will have to evaluate how the new rule impacts themselves personally. Employees should be mindful that they will still be liable for breaches of a non-compete occurring prior to the rule taking effect. If you have any questions or concerns on how this FTC rule affects your business, contracts, or yourself individually, please feel free to reach out to our office and have a consultation with one of our attorneys.

EPGD Business Law is located in beautiful Coral Gables. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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Eric Gros-Dubois

Founding partner Eric Gros-Dubois established EPGD Business Law in 2013. With over a decade of experience expanding the firm and leading it to its current success, Eric now primarily manages the corporate division of EPGD. Given Eric’s educational background, holding both a JD and MBA, combined with his own unique experience of starting a business from scratch and growing it to a multi-million dollar firm, he brings a specialized and invaluable perspective to those seeking legal assistance for themselves and their businesses. Having now instilled his same values in our team of skilled corporate associates, Eric leads a firm that is always ready, willing, and equipped to handle any and every legal matter that a business owner may have.


*The following comments are not intended to be treated as legal advice. The answer to your question is limited to the basic facts presented. Additional details may heavily alter our assessment and change the answer provided. For a more thorough review of your question please contact our office for a consultation.

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