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FTC Votes to Ban Noncompete Agreements

The Federal Trade Commission (FTC) has recently endorsed a final rule, marked by a 3-2 vote, to prohibit noncompete agreements for all employees.

This rule entails a mandatory disclosure requirement for companies, necessitating them to inform both current and former employees of their decision not to enforce existing noncompete agreements.

Under the finalized rule, the FTC has outlined a safe harbor provision comprising model language to facilitate compliance with the disclosure obligation. Furthermore, companies are afforded flexibility in meeting this requirement, with options including paper notices, mail, email, or text messages.

While the rule mandates the invalidation of existing noncompete agreements for the majority of employees, exceptions are made for senior executives earning more than $151,164 annually and occupying policymaking roles. However, it is imperative to note that the creation or enforcement of new noncompete agreements, even for senior executives, is strictly prohibited.

This new regulation is scheduled to take effect 120 days following its publication in the Federal Register. Notably, a coalition spearheaded by the U.S. Chamber of Commerce has initiated legal action against the FTC regarding the ban on noncompete agreements, expressing concerns over perceived government overreach and its potential adverse impacts on employees, employers, and the broader economy.

For comprehensive guidance on compliance with the noncompete ban, businesses and small entities are encouraged to refer to the FTC's noncompete compliance guide.

Source: National Association of Professional Employer Organizations

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