The Federal Trade Commission (FTC) voted today to approve a final rule that bans noncompete clauses for all workers, including senior executives, beginning on the rule’s effective date. Prior to approval of this rule, noncompete agreements were subject to state laws, which varied widely. The FTC’s approval of the final rule represents a significant shift in employment law nationwide, designating noncompete agreements as an unfair method of competition under Section 5 of the FTC Act. FTC Chair Lina M. Khan emphasized that this rule will free the workforce, allowing individuals to seek better job opportunities, start new businesses, or introduce innovations unencumbered by restrictive noncompete clauses.

For existing noncompete agreements entered into prior to the rule’s effective date, enforceability of such agreements depends on the employee’s status (and also each state’s applicable noncompetition laws). Under the FTC’s final rule, existing noncompete clauses will remain valid for senior executives, defined as those earning more than $151,164 annually and holding a policy-making position. For all other workers, existing agreements will become unenforceable once the FTC’s final rule takes effect.

This final rule will take effect 120 days after its publication in the Federal Register, which date is subject to potential future litigation affecting the rule.  In the meantime, we recommend evaluating and potentially revising your employment contracts, as well as assessing the enforceability of existing contracts, to address this updated legal landscape. Should you have any questions or need further assistance on how to proceed, please do not hesitate to reach out to any member of the Employment Rights, Benefits & Labor group at Ryan Swanson.