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FTC Votes to Ban Noncompete Agreements

Non-Compete Agreement

On April 23, 2024, the United States Federal Trade Commission voted 3-2 to issue a Rule banning all new noncompete clauses after the effective date of the Rule.  The Rule – if it goes into effect – would prohibit companies from entering into new noncompete agreements with all employees.  There is a carve out in the Rule for some existing noncompete agreements with “senior executives” (defined as employees in a “policy-making position” who earn more than $151,164 per year).  The Rule also has an exemption for business owners who sell their company.

Under the Rule, companies with existing noncompete agreements are required to provide a notice to employees who have noncompete agreements that the agreements are no longer enforceable and will not be enforced by the company.

The U.S. Chamber of Commerce issued a statement shortly after the FTC vote, criticizing the Rule as “not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive.”  The Chamber of Commerce statement indicates that it will be filing a lawsuit to block the Rule.

If not blocked by litigation, the Rule will go into effect 120 days after it is published in the Federal Register, likely meaning early September 2024.

Currently, noncompete agreements are mainly subject to applicable state law in most jurisdictions.  Some states (like Oregon) have specific statutes with restrictions on which employees can be subject to noncompete agreements.  Companies should consult with their employment attorney to determine how best to proceed in light of the new FTC Rule.