New Federal Trade Commission rule bans non-compete agreements.

Samuel J. Fenton, Associate Attorney

In a move set to impact millions of American workers, the Federal Trade Commission (FTC) has voted 3-2 in favor of a new rule that will prohibit the enforcement of most noncompete agreements. This rule, expected to take effect as early as September 4, 2024, comes after receiving an overwhelming 26,000 public comments during its development.

The New Rule:

Under the new Rule, it is considered an unfair competitive practice, hence a breach of Section 5 of the FTC Act, for employers to engage in noncompete agreements with their employees. As a result, all existing noncompete agreements with “workers” will be invalidated. A “worker” refers to any person who currently or previously worked for an employer, whether paid or unpaid. This definition applies regardless of the worker’s title or status and includes employees, independent contractors, externs, interns, volunteers, apprentices, and sole proprietors providing services to others.

Beyond the invalidation of noncompete agreements, under the FTC’s new rule, employers are obligated to provide notice to existing and former workers that noncompete clauses in their contracts are now unenforceable. The notice must be delivered in a specific manner outlined by the FTC to ensure that workers are informed of the change.

Effective Date & Exceptions:

The new rule is slated to take effect 120 days from its publication in the Federal Register. It is anticipated that the rule could take effect as early as September 4, 2024. Whether legal challenges will delay that timeline is yet to be determined.

The rule does have a few exceptions:

  • Sale of a business: Buyers of a “bona fide business entity” may still request and enter a noncompete agreement that restricts the seller of the business from competing after the sale closes, so long as the guidelines of the FTC are followed.
  • Existing Senior Executive non-compete agreements: Existing non-compete with “senior executives” will remain valid. In short, the term “senior executive” refers to workers earning more than $151,164 who are in a “policy-making position.” Agreements with senior executives will, however, not be enforceable if entered after the rule’s effective date.
  • Existing causes of action: The rule does not apply to situations where a cause of action related to a noncompete clause accrued before the effective date of the rule.

How can WHC Attorneys help?

Navigating the evolving landscape of employment law can be complex. The attorneys at WHC Attorneys, PLLC are well-equipped to assist both Washington and Idaho employers and employees in understanding their rights and assisting with compliance. Whether it’s clarifying the implications of the new rule, reviewing existing agreements, or exploring alternative agreements like nondisclosure agreements and non-solicitation agreements, our team is here to provide guidance.