In a Special Open Commission Meeting held this afternoon, the Federal Trade Commission voted to approve the final rule to ban non-compete agreements for for-profit businesses, the effective date of such ban being in 120-days.
Important items of note with the final rule:
- This rule only applies to for-profit businesses, as is within the scope of the FTC’s jurisdiction.
- The effective date for this new rule is in 120-days.
- New noncompete agreements are banned for all workers as of the effective date.
- Existing noncompete agreements may remain in effect for senior executives.
- Existing noncompete agreements are unenforceable for all other workers after the effective date.
- Recission by the employer is not required.
- Employers must provide notice to their employees; the FTC provided model language.
The FTC acknowledged that much of the healthcare industry operates under a non-profit tax status, so this new rule would not apply to employees of those healthcare entities. The FTC staff encouraged Congress to review the impact that non-compete agreements have on healthcare professionals and to take similar action with non-compete agreements in the healthcare industry.
Numerous business groups have expressed opposition to the proposed ban leading up to today’s vote, citing that noncompete agreements allow businesses to protect confidential information as well as protect other business interests. The FTC stated that, although it considered these business justifications for non-compete agreements, the benefits from such claimed justifications do not justify the harm to workers created by non-compete agreements.