The Noncompetition Agreement is No More (The New FTC Rule)

by Kristen Duffeler

The Noncompete is Dead

Non-compete agreements have long been a staple document used by employers large and small to protect their businesses.  However, new rule making from the Federal Trade Commission (the “FTC”) now essentially bans non-compete agreements – both going forward and retroactively.  On April 23, 2024 the FTC, published a final rule finding that “it is an unfair method of competition … for employers to … enter into non-compete clauses with workers.”  Accordingly, the new final rule “adopts a comprehensive ban on new non-competes with all workers.”  The rule also prohibits the enforcement of most existing agreements.  This rule will become effective 120 days after it is published in the Federal Register (which likely means in August 2024), and will have wide-reaching implications for employers.

In the final rule, a non-compete is broadly defined as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from seeking or accepting work in the United States with a different person where such work would begin after conclusion of employment that includes the term or condition; or operating a business in the United States after the conclusion of the employment that includes the term or condition.”

The definition of “worker” is similarly broad, and includes workers both paid and unpaid, whether an employee, independent contractor, intern, volunteer, etc.

Fundamentally, all new non-compete agreements that restrict post-employment competition, with workers of any type, will be banned once the final rule becomes effective.  In addition, most existing non-competes will be unenforceable, as the rule deems it unfair competition not only to enter into a non-compete agreement, but also to “enforce or attempt to enforce a non-compete clause; or [t]o represent that the worker is subject to a non-compete clause.”  Furthermore, employers are required to provide any affected worker with “clear and conspicuous notice” that subject non-compete agreement will not and cannot be enforced.

However, there are some limited exceptions as well as grandfather provisions for existing agreements with senior executives.


It is important to note that the definition of non-compete is limited to restrictions that apply to a worker’s post-employment activity.  Employers are thus still permitted to prohibit their workers from competing against them while still employed.

Likewise, there are limited exceptions for agreements that are already in place with senior executives.  The rule does not prohibit the enforcement of a non-compete agreement with a senior executive, defined as a natural person in a policy making position and receiving at least $151,164 in annual compensation, provided that such agreement was in place prior to the effective date of the rule.

As a final exception, the rule does not generally apply to non-competes that are entered into as part of the sale of a business.  In other words, if you buy a new business, you likely can still prohibit the previous owner from competing against you.

What now?

Businesses still have a vested interest in protecting their confidential business information and other intellectual property.  Employers who have been relying on non-compete agreements should immediately consider alternate means of protecting such information, such as non-disclosure agreements, non-solicitation agreements, invention assignment agreements, and employee-retention measures.

But wait…

The final rule may not be entirely final.  Roughly 24 hours after the final rule was announced, the U.S. Chamber of Commerce filed a lawsuit seeking to strike down the new rule, alleging that the FTC lacks the power to adopt it.  The Chamber’s position is that while the FTC is empowered by federal law to enforce existing antitrust laws passed by Congress, it does not have a mandate to determine what other business activity is anticompetitive.

The final result remains to be seen, but for now, businesses should plan on the final rule becoming effective in August of this year. What should you do next? Consider alternative methods to protect your company and its goals.  These alternatives to noncompetition agreements can be highly effective for protecting your business. In addition, if you have existing non-compete agreements, counsel can assist you in complying with the pro-active notice requirements of the new rule. As you consider your options, Way Law is always here to help!