The US Federal Trade Commission has issued a final rule banning noncompetes nationwide, treating them as an unfair method of competition in violation of Section 5 of the FTC Act. The FTC noncompete rule was approved on 23 April 2024 by a 3 to 2 vote of the Commission and will take effect 120 days after publication in the Federal Register, according to the agency's announcement.
Corporate INTL Newsroom · Employment & Labour
FTC Noncompete Rule Bans Most Noncompetes for US Workers
By The Corporate INTL Newsroom · 24 April 2024
The FTC estimates that about 30 million workers, nearly one in five Americans, are bound by a noncompete. It projects that the rule will increase new business formation by 2.7% a year, or more than 8,500 additional businesses a year, and raise earnings for the average worker by an extra $524 a year.
What the rule requires
From the effective date, employers may not enter into new noncompetes with any worker, including senior executives. Existing noncompetes with workers other than senior executives will not be enforceable after the effective date. The FTC's fact sheet explains that existing noncompetes with senior executives can remain in force; the rule defines senior executives as workers earning more than $151,164 a year who are in policy-making positions, a group the agency estimates at less than 0.75% of workers.
Instead of formally rescinding existing noncompetes, employers must notify workers other than senior executives who are bound by one that it will not be enforced against them. The final rule dropped the proposed rescission requirement and includes model language for the notice.
Who is affected
The rule reaches employers across the US economy, in sectors from technology and finance to healthcare, where the FTC estimates savings of up to $194 billion over the next decade. Employers will need to identify existing agreements that contain noncompetes, decide which workers count as senior executives, and send the required notices. Multinational employers with US staff will need to align global templates.
What happens next
The rule's effective date depends on publication in the Federal Register. In the meantime, employers should audit their contracts, prepare notice processes and avoid entering into new noncompetes that would become unenforceable once the rule applies. The vote was split, with two Commissioners voting against the rule, which signals that the agency's approach is contested.
Sources
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