Breaking News: FTC Bans Noncompete Agreements

Introduction to the New FTC Noncompete Agreements Rule 

On April 23, 2024, the U.S. Federal Trade Commission (FTC) approved a proposed final rule that would ban virtually all noncompete clauses in employment-related agreements for nearly all workers.

The FTC found that these agreements not only suppress wages but also hinder competition by preventing workers from seeking better job opportunities, which also restricts companies from recruiting top talent.

Details and Definitions

The final rule makes all existing noncompete agreements unenforceable, with limited exceptions, including those covering senior executives. The FTC defined the term “senior executives” as workers earning at least $151,164 in total compensation annually who are in a policy-making position.” New noncompete agreements for those meeting the definition of “senior executive” are banned under the FTC’s final rule. 

The final rule requires companies to provide “clear and conspicuous” notice to current and former workers that their noncompete clauses are no longer in effect. ”Worker” is defined as a natural person who works or who previously worked, whether paid or unpaid, including not just employees but also independent contractors, externs, interns, volunteers, apprentices, and sole proprietors. Because workers are limited to natural persons, noncompete agreements between businesses are still enforceable. 

The final rule defines “noncompete clause” to mean a contractual term that blocks a worker from working for a competing company or employer or starting a competing business within a certain geographic area and period after the worker’s engagement ends. The rule also applies in some cases to agreements that require workers to pay back the company for training cost if the worker’s engagement terminates within a specified time. 

State Law Compliance and Legal Challenges

All current state laws that limit noncompete agreements will be preempted when the final rule takes effect, unless they offer greater worker protection than the FTC rule. This means states can continue to enforce their own laws restricting noncompete agreements, as long as these laws do not conflict with the final rule, even if the state laws are narrower in scope. Therefore, companies must continue to comply with applicable state noncompete laws as they prepare to adhere to the FTC’s final rule.

The final rule is already facing legal challenges as the U.S. Chamber of Commerce and other business groups filed a lawsuit against the Federal Trade Commission over a new rule in federal court in the Eastern District of Texas the day after the rule was issued, April 24, 2024. However, businesses should prepare for the final rule to become effective in August 2024 absent injunctive relief.

Get Support Navigating the FTC Noncompete Agreement Rule

TCWGlobal is working with our clients to develop optimal strategies for addressing the FTC's final rule on noncompete clauses.  

If your Employer of Record has not kept you informed about significant legal updates, TCWGlobal is ready to assist in formulating a response plan for your existing noncompete agreements or crafting more specific non-disclosure agreements.  

Our global support team is available to help you understand the full range of services we offer. You can reach us at  (858) 810-3000 or hello@tcwglobal.com for further information.