Preparing for the FTC Noncompete Ban

On April 23, 2024, the Federal Trade Commission (FTC) voted to issue a final rule that would prohibit employers from entering into or enforcing noncompete clauses with most employees.

The final rule was published in the Federal Register on May 7, 2024, and is scheduled to take effect 120 days after such date on Sept. 4, 2024.

Subject to very limited exceptions, the final rule provides that:

• The use of noncompete clauses will be banned as of the effective date;
• Any existing noncompete clauses (other than those entered into with senior executives) will be invalidated;
• Employers must notify all employees (other than senior executives whose existing noncompete agreements will remain enforceable) that their existing noncompete agreements will not be enforced. The FTC stated that it aims to promote competition by protecting the freedom of workers to change jobs, increasing innovation and fostering new business formation. 

Action Steps

Employers that use noncompete or similar protective clauses should familiarize themselves with the rule’s requirements and take steps now to prepare for its effective date. This Compliance Bulletin provides an overview of the key provisions of the final rule and steps employers may take to prepare for the FTC’s ban on noncompete clauses. Employers should note, however, that at least three lawsuits (including one brought by the U.S. Chamber of Commerce) seeking to block the final rule have already been filed, so employers should monitor for additional legal challenges and prepare for potential uncertainty. 

Highlights

The FTC final rule will:

• Prohibit the use of noncompete clauses for almost all employees as of the effective date;
• Invalidate any existing noncompete clauses (other than those entered into with senior executives);
• Require employers to notify current and former employees (other than senior executives) that their existing noncompete clauses will unenforceable. Important Dates be 

Important Dates

1. April 23, 2024 The FTC voted to issue a final rule to prohibit employers from entering into or enforcing noncompete clauses with most employees.
2. May 7, 2024 The final rule was published in the Federal Register.
3. Sept. 4, 2024 The final rule is scheduled to take effect 120 days after it was filed in the Federal Register.  

Click here to Download the full HR Compliance Bulletin regarding the FTC Noncompete Ban

This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
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