BREAKING NEWS: The Federal Trade Commission Moves to Ban All Non-Compete Agreements

By Jonathan T. Hyman, Esq., Rachelle Kuznicki Zidar, Esq., Amy L. DeLuca, Esq., and Matthew N. Danese, Esq.

“It is an unfair method of competition for a person: (i) to enter into or attempt to enter into a non-compete clause; (ii) to enforce or attempt to enforce a non-compete clause; or (iii) to represent that the worker is subject to a non-compete clause.”

With those 42 words, the Federal Trade Commission turned the workplace on its head.

Yesterday, the FTC published its “Non-Compete Clause Rule,” which will operate to ban all non-compete agreements between employers and workers.

Here are the nuts and bolts:

• The Rule applies to non-compete agreements, not to non-solicitation agreements, confidentiality agreements, or non-disclosure agreements.
• The Rule not only applies to traditional non-compete agreements, but also agreements that would “penalize” a worker for competing, such as agreements that would require employees to forfeit equity, bonuses, deferred compensation, or other money upon a breach.
• The Rule not only applies to all new non-competes moving forward, but also to most existing non-competes, which will become unenforceable.
• The Rule’s lone exception is existing non-competes for senior executives earning $151,164 or more per year. Their existing non-compete agreements remain binding and enforceable, but this exception does not extend to permit new non-competes moving forward.
• The Rule will require notice to employees of the non-enforceability of their existing non-compete agreements.
• The Rule takes effect 120 days after its publication in the Federal Register. That hasn’t happened yet and no one knows when that will be. 

We expect one or more legal challenges to be filed over this Rule, and it faces a long uphill battle in the lower federal courts and ultimately in the Supreme Court. 

For this reason, there is nothing for you to do for now other than arming yourself with knowledge of the Rule’s existence in the event that it takes effect. WHP will keep you updated about this Rule’s status moving forward.

For more information, contact any of Jon Hyman, Rachelle Zidar, Amy DeLuca, or Matt Danese.

This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.