Federal Trade Commission bans most non-compete agreements in employment contracts

On April 23, 2024, the Federal Trade Commission approved a Final Rule that bans almost any agreement that restricts where a worker may work after he or she leaves his or her current employer. Such an agreement is a non-competition agreement. The Final Rule is effective 120 days after publication in the Federal Register absent a successful legal challenge. The U.S. Chamber of Commerce already filed a lawsuit to stop the Final Rule.

The highlights of the Final Rule are:

  1. It prohibits a non-competition agreement after the Final Rule’s effective date unless the agreement is part of a sale of a business.
  2. The Final Rule bans enforcement of an existing non-competition agreement unless the employer entered into the agreement with a “senior executive” before the Final Rule’s effective date. “Senior executive” means an employee in a policymaking position whose annual compensation (salary, commissions, and nondiscretionary bonuses and other compensation) is at least $151,164.
  3. An employee, independent contractor, volunteer, apprentice, and sole proprietor are covered by the definition of “worker.” The FTC’s prohibition is quite broad. A franchisee in a franchisee-franchisor relationship is excluded from the definition of “worker.”
  4. The employer must provide a notice to each worker with a prohibited non-competition clause in an agreement by the Final Rule’s effective date. The notice must provide that the non-compete clause will not be and cannot legally be enforced. The FTC provides an optional model notice.

Everyone using non-competition agreements should understand which jobs and employees are subject to non-competition agreements. At the same time, strong legal arguments exist against the FTC’s authority to issue the Final Rule. Clients should keep apprised of developments and calendar the 120-day effective date with room to spare to take action. Clients should touch base with an attorney on recommended next steps. Clients or businesses with any questions about the FTC’s new Final Rule banning most non-competes should contact their Stafford Rosenbaum lawyers or call us at (608) 256.0226 or (414) 982.2850.

Stafford Rosenbaum LLP is a full-service law firm with two convenient office locations in Madison and Milwaukee, Wisconsin. 145 years of dedication to businesses, governments, nonprofits, and individuals has proven that effective client communication continues to be the heart of our practice.

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