No More Non-Competes for Most Employees and Contractors

On April 23, 2024, the Federal Trade Commission ("FTC") banned non-competes for most workers. The FTC's new rule prohibits post-employment non-compete agreements. A post-employment non-compete agreement is any contract or contract provision that prohibits a worker from, penalizes a worker for, or in some way functions to prevent a worker from seeking or accepting work or starting their own competing business after the conclusion of their employment.

The rule applies to all businesses under the FTC’s jurisdiction, no matter their size. Some businesses not subject to the rule include banks, savings and loan institutions, federal credit unions, and certain non-profits.

The rule applies to all W-2 employees and 1099 independent contractors.

This rule goes into effect on September 4, 2024.  

There are a few exemptions that allow for non-compete agreements. For example, non-compete agreements can be used to restrict the seller of a business from competing for a time period after the sale. In addition, current non-compete agreements with “senior executives” can stay in effect. Senior Executives are defined as individuals whose annual compensation is over $151,164 and are in a policy making position for the business. But note that this exception only allows for current non-compete agreements with senior executives to remain enforceable; any future non-compete agreements with senior executives are banned.  

Also, the rule does not ban non-solicitation restrictions, confidentiality restrictions, or intellectual property ownership provisions, so workers can be prohibited by contract from soliciting your customers and workers and from using your confidential and proprietary information and property to compete with your business after their employment with you has terminated or expired.

Businesses subject to the new rule must (1) no longer use post-employment non-compete agreements, (2) provide notice to workers who have existing non-compete agreements that those agreements are now unenforceable, and (3) not enforce existing non-compete agreements against workers. Visit this blogpost for more information about the notice requirement: https://www.joelankney.com/post/ftc-non-compete-model-notice-language

Contact Joel Ankney at joel@jalawoffice.com if you have any questions about whether the new non-compete rule applies to you or your business or if you need help notifying workers that their non-competes are no longer enforceable.