InfoBytes Blog
FTC bans all non-competes for workers and new non-competes for senior executives
On April 23, the FTC released a final rule titled the “Non-Compete Clause Rule,” in a 570-page release, to “categorically ban” non-compete clauses in employment contracts with all workers after the effective date of the rule pursuant to the FTC’s UDAP authority, by rendering such clauses an unfair method of competition pursuant to Section 5 of the FTC Act. The final rule also renders most existing noncompete clauses unenforceable after the effective date of the final rule, with an exception for existing noncompete clauses for senior executives, which remain enforceable. The FTC explained that it viewed noncomplete clauses as “restrictive and exclusionary” with negative impacts on earnings, innovation, and market competition. The final rule defines “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
While the FTC decided against adopting a rescission requirement for non-competes in the final rule, it adopts notice requirements for all workers who are not senior executives requiring “the person who entered into the non-compete” to provide “clear and conspicuous notice to the worker by the effective date that the worker’s non-compete clause is no longer in effect and will not be, and cannot legally be, enforced against the worker.” The Commission noted that employers concerned about protecting confidential business information, may avail themselves of the protections of trade secret law and further noted that there are several states that have already substantially banned non-competes, and that within these states employers have found alternative methods to protect their investments.
The FTC’s final rule will go into effect 120 days after publication of the final rule in the Federal Register.