Seyfarth Synopsis: The FTC approved a final rule to implement a nationwide ban on non-compete agreements between employers and their workers. The rule would supersede most state laws regarding noncompete provisions except where a state law prohibition is stricter.
On April 23, 2024, the Federal Trade Commission (FTC) approved in a 3-to-2 vote a final rule (“Final Rule”) which bans post-employment non-compete clauses between employers and their “workers,” including independent contractors. The Final Rule will become effective 120 days after being published in the Federal Register. As of the date of this post, the Final Rule has not been published in the Federal Register. If it becomes effective, the Final Rule would supersede any contrary state laws.
The ban covers not just traditional non-compete provisions, but any restrictive covenant with a worker that acts to prevent the worker from taking a position with another employer or starting a separate business. For example, the Final Rule explains that an overbroad confidentiality provision could prevent an employee from working for other employers in the same field and, therefore, may be treated as a prohibited non-compete restriction. On the other hand, the ban provides an exception for covenants not to compete as part of a sale of a business, and it grandfathers certain agreements with “senior executives” that are entered into prior to the effective date.
The ban’s scope is very broad and leaves many questions open for interpretation. To assist our clients, Seyfarth has published a multidisciplinary legal update and FAQs. For access, please click here.