The FTC Votes to Ban Non-Compete Agreements

The Federal Trade Commission voted 3-2 today to approve a final rule banning non-compete agreements nationwide. The rule is slated to go into effect 120 days after its published in the Federal Register.

Many have called into question whether the agency has the authority to unilaterally ban non-compete agreements – including two dissenting commissioners from today’s vote. We anticipate that the U.S. Chamber of Commerce or a similar entity will seek a temporary restraining order and emergency injunction in the next few days. After that, a wave of lawsuits challenging the rule is expected in the coming weeks.

The rule makes entering into non-competes with workers an unfair method of competition, and therefore a violation of Section 5 of the FTC Act. More specifically:

  • The rule prohibits entering into new non-competes after the effective date, including with senior executives.
  • Existing non-competes with senior executives remain in force. The rule defines “senior executive” as an employee earning more than $151,164/year who is in a “policy-making position.”
  • Other existing non-competes are void as of the effective date.  The rule requires employers to give current and past employees notice that the employer will not enforce existing non-competes.
  • The definition of “non-compete” does not include prohibitions on competing during employment with the employer.
  • Non-solicitation provisions do not appear to be covered by the rule.
  • Sale of the business scenarios are excluded from the rule.

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