Apr 23, 2024
In January 2023, the Federal Trade Commission (FTC) published a proposed rule that would invalidate existing non-competition agreements and prohibit employers from entering into new non-competition agreements, with very limited exceptions. On April 23, 2024, the FTC, on a 3-2 vote, issued its final rule, which largely leaves the proposed rule unchanged, except as provided below.
The agency’s reasoning in January 2023 for the creation of this rule is that non-competition clauses are anti-competitive, keep wages low, hamper the development of new businesses and ideas, and exploit workers. The proposed rule follows a gradual constricting of employers’ ability to enter into non-competition agreements with employees over the past several years, albeit mostly at the state level.
Specifically, the final rule provides as follows:
The commentary offered by the FTC today states that the rule does not affect confidentiality or non-disclosure agreements or clauses and that such agreements or clauses are permitted alternatives to non-competition agreements.
This rule has drawn significant opposition from the business community as well as challenges to the FTC’s ability to promulgate such a rule. Immediate legal challenges are likely, and the United States Supreme Court’s expected decisions in the pending cases of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce may determine that the FTC does not have the power to issue and enforce such a rule.
We will keep you posted on developments related to this proposed rule but contact any of the listed Roetzel attorneys if you have specific questions. In the meantime, we recommend that you proceed as usual with your non-compete practices, whether requiring them of employees or enforcing the ones that you do have.