In a day marked by significant regulatory activity, including the DOL’s rule raising salary thresholds for exempt employees, the Federal Trade Commission (FTC) has voted to ban essentially all noncompete agreements in employment, concluding that they negatively affect competitive conditions in labor markets and further lead to higher prices for consumers.

In a 3-2 vote along party lines, the FTC’s new rule will render unenforceable existing noncompetes for the vast majority of workers. The FTC estimates that 18% of the nation’s workforce are subject to noncompete agreements. Existing noncompetes for senior executives (those earning more than $151,164 annually and who hold policy-making positions) can remain in force, but employers are banned from entering into or enforcing any new noncompete agreements, including those that involve senior executives. The rule also requires employers to provide notice to workers (other than senior executives bound by existing agreements) that workers will not be bound by existing noncompete agreements and employers will not be enforcing those agreements.

The FTC’s vote does not affect existing trade secret laws or nondisclosure agreements, which are used to protect proprietary and sensitive information. It also does not ban noncompete agreements entered into pursuant to a bona fide sales of a business entity.

The rule is set to become effective in 120 days (or August 21, 2024).

Numerous business groups are set to challenge the new rule, including the U.S. Chamber of Commerce, who is promising to sue to block enforcement as early as tomorrow, April 24, 2024.

If you have any questions on the FTC’s rule, please do not hesitate to contact us.