The FTC Officially Bans Noncompete Agreements

On April 23, 2024 the Federal Trade Commission approved a new rule effectively banning the use of noncompete agreements between employers and employees. When the new rule takes effect, employers will no longer be able to enter into noncompete agreements with their employees, with only narrow exceptions.

A noncompete agreement is a contractual agreement between an employer and employee where the employee agrees not to work for a competitor or start their own competing business for a set period of time after they leave employment. Noncompete agreements are typically presented when the candidate is hired, and employment is often conditioned on the candidate’s agreement.

Minnesota already banned new noncompete agreements starting in July of 2023, but the new rule is effective nationwide and goes even farther. Under the new rule, existing noncompete agreements are no longer valid, and employers who used noncompete agreements are required to announce to their employees that the agreements are no longer effective. There are only narrow exceptions, such as agreements with senior executives making over $150,000 annually and for agreements made as part of a sale of a business.

The rule will also not restrict the use of other agreements that can protect employers once their employees leave, such as nondisclosure agreements, nonsolicitation agreements, agreements designed to protect trade secrets and confidential information, and agreements preventing the use of customer lists. Employers should take a careful look at these agreements and other options they may have to protect their business.

The new rule is scheduled to take effect on August 21, 2024, but faces potential court challenges. The attorneys at SJJ Law stand ready to answer any questions you may have.