Jimmy Starke
On April 23, 2024, the Federal Trade Commission adopted a final rule banning non-compete provisions in employment contracts nationwide, determining that noncompete provisions are an unfair method of competition and thus violate federal law. Once formally published, the rule would prohibit any employer from entering into a new non-compete provision with any employee. All existing non-compete provisions would be unenforceable, except for those for “senior executives,” defined as workers earning an annual salary of more than $151,164 and in policy-making positions. The ban also does not apply to employees of not-for-profit entities or franchises.
In 2021, President Biden signed an Executive Order that encouraged the FTC to limit the use of non-compete clauses in employment contracts. Non-compete clauses are used to prohibit workers from leaving their employer to accept a position with an industry competitor. These agreements typically prevent employees from taking competing jobs within a certain geographic scope of their current job and within a certain amount of time after their departure from the company. Roughly one in five Americans has a clause of this nature in their employment contract. In 2023, the FTC first proposed a ban, based on the idea that it unfairly blocks workers from switching jobs – thereby undermining competition in the labor market.
The final ban passed the FTC with a 3-2 majority vote on April 23, 2024. Numerous trade unions, public commentors, and elected officials have supported the ban. The FTC recognized the both trade secret laws and non-disclosure agreements provide employers with means to protect sensitive and proprietary information. Rather than use noncompetes, employers who wish to retain employees can compete on the merits for their services by improving wages and working conditions.
This FTC decision is a massive win for workers, providing new freedoms to switch jobs in pursuit of the best employment situation possible. In addition to employment contracts, non-compete clauses may also be written into severance agreements and employee handbooks. If you have a question about the enforceability of a non-compete clause, please contact our firm.
