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What to Know About FTC’s Final Rule Banning Noncompete Clauses with Workers

May 16, 2024

Alas! The wait is over….Or is it? In January 2023 the Federal Trade Commission (FTC) proposed a rule that would largely ban non-compete clauses nationwide, with limited exceptions. On April 23, 2024, the FTC issued its final rule related to the ban of non-compete clauses. This final rule is scheduled to be published in the Federal Register on May 7. It will become effective on September 4, 2024 (120 days after its publication in the Federal Register), pending no legal challenges between now and then that delay its implementation. Here are the biggest takeaways from this rule:

• As of the effective date, non-compete agreements (including all terms that have the same functional effect as non-compete agreements) covered by this rule will be banned nationwide.
• Prior to the rule’s effective date, employers must provide “clear and conspicuous notice” to workers with existing non-competes that the non-compete clauses will not be enforced.
• As of the effective date, it is a violation of the rule to enter or attempt to enter a non-compete clause with a worker, enforce or attempt to enforce a non-compete clause with a worker, or represent that the worker is subject to a non-compete clause. The FTC defines “worker” more broadly than employee. “Worker” includes employees, independent contractors, externs, interns, volunteers, apprentices, and sole proprietors who provide a service. It does not, however, include franchisees in the franchisee-franchisor relationship.
• There are exceptions to the rule, including for non-competes entered prior to the rule’s effective date with “senior executives” (as defined by the rule), non-competes entered in connection with the sale of a business, and non-competes where the cause of action accrued prior to the effective date of the final rule.
• This rule only applies to entities under the FTC’s jurisdiction. Therefore, the rule does not apply to certain nonprofit organizations, banks, federal credit unions, and others not covered by the Federal Trade Commission Act.

While multiple lawsuits have already been filed challenging the rule, we cannot ignore its existence. Shuttleworth & Ingersoll will be hosting a webinar on Wednesday, May 29 from 12 pm-1 pm to address this FTC rule as well as other recent agency rules and guidance. Join us to learn more about these regulatory changes, how they impact your workplace, and what steps you should be taking to ensure compliance.

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