Last Updated: August 22, 2024

A federal court has blocked the FTC Non-Compete Ban that was going into effect on September 4, 2024. This means that employers do not need to follow the rule outlined below at this time. However, employers still need to ensure they comply with any state specific rules.

Earlier this year, the Federal Trade Commission announced a final regulation that bans employers throughout the country from enforcing and entering into non-compete clauses with workers. It is scheduled to become effective on September 4, 2024. While there are still several court cases pending that could invalidate the regulation, as far as we know it will apply to ALL United States employers in September. It is important for you to prepare now.

What does the FTC Rule Prohibit?

An employer may not enter into, attempt to enter into, or try to enforce a non-compete clause with a “worker” (i.e. employees and independent contractors) or represent that a worker is subject to a non-compete clause.

There are also a few exemptions:

Employers can enforce existing non-compete agreements with “senior executives” – those with over $151,164 in annual compensation and in a policy-making position for the business. Employers cannot enter into new non-compete agreements with “senior executives” after the effective date.
The ban does not apply to a person pursuant to a bona fide sale of a business entity.
The ban does not prohibit employers from enforcing non-compete clauses where the cause of action related to the non-compete clause accrued prior to September 4, 2024.

What can an Employer do under the FTC Rule?

It is important to note that the FTC Rule does not ban all ways that an employer can contractually protect its business. An employer may still require workers to protect and not disclose the employer’s confidential information and trade secrets. An employer may also require non-solicitation of employees and clients as long as such provisions are drafted narrowly.

What must an Employer do now?

Before September 4th, employers must send all workers currently subject to a non-compete a written notice that the worker’s non-compete clause will not be, and cannot legally be, enforced against the worker.
Employers should review and revise as necessary all employee communications, handbooks, and agreement templates to ensure compliance going forward.

What happens if the FTC Rule is invalidated?

If the FTC Rule is invalidated, then non-competes will be enforceable unless otherwise prohibited under relevant state law. DC, Maryland and Virginia all have some prohibitions of non-competes already that employers will need to ensure they are in compliance.