On April 23, 2024, the Federal Trade Commission issued a final rule barring employers from entering into noncompete agreements. The final rule will become effective 120 days after the date of publication in the Federal Register.

The vast majority of existing noncompetes — those entered into before the effective date — will no longer be enforceable after the rule takes effect. The FTC’s final rule specifically allows existing noncompetes for senior executives to remain in force, but employers are barred from entering into or attempting to enforce any new noncompetes, even for senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and holding policy-making positions.

Additionally, employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that these agreements will not be enforced against them. Employers must provide clear and conspicuous notice to the worker by the effective date that the worker’s non-compete clause is no longer in effect and will not be, and cannot legally be, enforced against the worker.

The final rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity. The FTC has stated that “[a] bona fide sale is one made in good faith as opposed to, for example, a transaction whose sole purpose is to evade the final rule.”

The U.S. Chamber of Commerce plans to challenge the FTC’s final rule. Conservative legal scholars have described the rule as “a breathtaking power grab” that “may be the most audacious federal rule ever proposed.” Opponents of the final rule are expected to argue that the rule is beyond the FTC’s powers to regulate unfair business practices.

In recent years, United States district courts in Texas, and other states within the jurisdiction of the United State Court of Appeals for the Fifth Circuit, have been the preferred venues for litigants seeking nationwide injunctions furthering conversative public policy objectives. It is reasonably likely that such courts will enjoin enforcement of the final rule for many years to come before the issue is resolved by the United States Supreme Court. 

However, for the foreseeable future, employers should prepare to comply.  

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If you have questions or would like additional information, please contact our Labor & Employment attorneys or the primary EGS attorney with whom you work.