Understanding the FTC’s Landmark Noncompete Clause Ban

non compete

On April 23, 2024, the Federal Trade Commission (“FTC”) banned a majority of noncompete clauses and agreements across the nation, determining that noncompetes are an unfair method of competition. According to FTC’s Chair Lina M. Khan, the FTC believes this ban will “ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

This ban excludes existing noncompetes for senior executives, but prohibits entering into or attempting to enforce any new noncompetes (even if they involve senior executives). Additionally, the FTC’s ban will require employers to provide notice to workers (other than senior executives) who are bound by existing noncompetes that they will not be enforcing any noncompetes against them.

While non-solicitation agreements are generally seen as distinct from noncompete clauses under the final rule, the ban may apply to non-solicitation agreements if they function to prevent a worker from seeking or accepting other work, or starting a business after their employment ends.

As many expected, this ban was met with legal challenges almost immediately. The first lawsuit filed against the FTC was in the Northern District in Texas (Ryan, LLC v. Federal Trade Commission, Case No. 3:24-cv-00986), claiming, in part, that the ban exceeds the FTC’s legal authority and is unconstitutional. A few additional petitioners, including the U.S. Chamber of Commerce, have followed suit with their own challenges.

The FTC’s ban is set to take effect September 4, 2024, pending the current (and future) legal challenges.

The attorneys at Upton & Hatfield are ready to help with any questions about how the FTC’s ban, and pending legal challenges, may affect both employers and employees.