On April 23, 2024, the Federal Trade Commission (“Commission”) adopted a new rule, titled “Non-Compete Clause Rule,” which states in relevant part:
“[I]t is an unfair method of competition for a person to enter into or attempt to enter into a non-compete clause; to enforce or attempt to enforce a non-compete clause or to represent that the worker is subject to a non-compete clause.”
(Non-Compete Clause Rule, NPRM, 88 FR 3482 (Jan. 19, 202), codified as 16 C.F.R. § 910, et seq.) The Non-Compete Clause Rule will take effect 120 days after the date of its publication in the Federal Register.
Despite restrictive covenants having been traditionally governed by state law, all non-compete provisions will be regulatorily barred – regardless of state law – pursuant to the Non-Compete Clause Rule. Indeed, it will soon be a violation of Section 5 of the Federal Trade Commission Act (“FTC Act”) for an employer to enter into or remain in a non-compete provision with a worker. Notwithstanding the all-encompassing nature of the ban, the Commission does provide exceptions to the rule, such as: (i) existing non-competes are still enforceable for “senior executives,”[1] (ii) existing non-competes, for which a cause of action has accrued by the effective date of the rule, remain actionable, and (iii) non-competes are enforceable when entered into in conjunction with the sale of a business entity or the sale of all or substantially all of a business entity’s operating assets.
If you have any questions about the FTC’s non-compete ban or are interested in taking legal action concerning a non-compete to which you are a party, please do not hesitate to contact Matthew Minsky, Esq. at Bochetto & Lentz, P.C.
*Matthew Minsky, Esq. may be contacted at mminsky@bochettoandlentz.com or 610-457-2763.
[1] Non-competes may remain in force for “senior executives” of companies, but employers are banned from entering into any new non-competes with forthcoming senior executives. A “senior executive” is defined as a worker earning “more than $151,164” and in a “policy-making position.” (16 C.F.R. § 910.1).
