Are Non-Competes Enforceable Post The New FTC Rule?

Now that the Federal Trade Commission has formally passed a rule banning non-compete provisions in employment, independent contractor, consulting, and other “worker related” agreements, upon the effective date of the rule, most non-compete provisions will be unenforceable nationwide. Certain states had previously banned non-compete provisions, including the District of Columbia, but now a Federal requirement will be in place, absent any Court overturning such rule.

The rule is effective 120 days after its publication in the Federal Register and prohibits any non-compete provisions to be entered into by the employer with the worker, except in certain limited circumstances, such as a “Senior Executive” (as defined in the rule) or one entered into through the course of a sale of a business or substantially all of the business’ assets. The definition of a “worker” is expansive to include any natural person who may be an employee, independent contractor, extern, intern, volunteer, apprentice or a sole proprietor.

The rule not only impacts prospective agreements with workers, but also voids any existing non-compete clauses in current work related agreements. No later than the effective date of the rule, employers are required to send written notice to all workers that their non-compete clauses in their current agreements can no longer be legally enforced.  The rule provides a sample form for this  communication.

If you are an employer, do speak with your advisors soon about both the rule’s implementation and any strategy regarding this new FTC rule. Employers may want to wait to make such notifications until closer to the effective date in order to allow any challenging lawsuits to begin to work through the court system (and any Court Orders delaying the rule’s implementation).

The material on this website is not offered as legal advice on any matter and should not be used as a substitute for seeking professional legal advice.