• This Alert is a special update regarding the Federal Trade Commission’s rule banning noncompete clauses

On Tuesday, April 23, the Federal Trade Commission (FTC) voted 3-2 along party lines to approve its new rule on noncompete agreements. The new rule, which will take effect in 120 days, essentially bans noncompetes for all workers, finding them “an unfair method of competition – and therefore a violation of Section 5 of the FTC Act.” While the rule is final, legal challenges are expected to follow.

Notably, a noncompete clause is broadly defined by the new rule as a “contractual term or workplace policy that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment or operating a business in the United States after the conclusion of the employment.”

The new rule applies retroactively to prior agreements, other than those for senior executives earning more than $151,164 a year in a “policy-making position.” Employers must provide notice to other workers subject to non-compete agreements that they are no longer enforceable.

Not limited to employees, the noncompete ban extends to independent contractors, externs, interns, volunteers, apprentices and sole proprietors who provide a service to a person. It does not include noncompetes entered into pursuant to a bona fide sale of a business entity or in a franchisor-franchisee relationship.

While employers’ protectable interests are often cited as a justification for noncompete clauses, it is important to note that this rule does not ban non-disclosure and confidentiality agreements.

Stay tuned for more information on the developing regulations for noncompetes and expected legal challenges. 

If you have any questions or concerns please feel free to reach out to MRAA Government Relations Manager Chad Tokowicz at Chad@mraa.com or Government Relations Director Mike Sayre at Sayre@mraa.com.