Employment Law Update: New Federal Trade Commission Rule Bans Noncompete Agreements

On April 23, 2024, the Federal Trade Commission (“FTC”) released its long-awaited rule concerning the validity of employee noncompete agreements. Following its effective date (projected to be 120 days after April 23, noncompete agreements will be considered a restraint of trade except where they are executed in connection with the sale of a business.

All existing noncompete agreements, with the exception of those signed by  “senior executives” (defined as policy-making employees earning at least $151,164 in annual compensation)  in existence prior to the rule’s effective date, will retroactively become unenforceable, and they will not be permitted going forward.

The rule does not apply to noncompete agreements that were breached prior to the effective date.  So cases currently in court over an alleged breach are not affected by the new rule.

The new FTC rule will also impose an affirmative duty on all employers with existing noncompete agreements to notify workers that those agreements are no longer in effect by the effective date. Because the duty to notify is triggered at the rule’s effective date, employers should make arrangements to ensure compliance with the new rule.

There will likely be legal challenges to the FTC’s authority to make this Rule, so stay tuned. But if it survives it will be a true game changer for American workers.

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