FTC Bans Non-Compete Agreements
The Federal Trade Commission (“FTC”) recently issued a new rule banning most non-competition agreements. The FTC found that non-competition agreements “keep wages low, suppress new ideas, rob the American economy of dynamism,” and prevent more than 8,500 new startups each year.
The Final Rule defines a “noncompete” as a contractual provision that “prohibits a worker from, penalizes a worker for, or functions to prevent a worker from
(1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or
(2) operating a business in the United States after the conclusion of employment that includes the term or condition.”
The FTC’s final rule on non-competition agreements won’t be effective until 120 days after publication in the Federal Register.
The Final Rule prohibits employers from entering into non-competes with their employees after the effective date. Previously existing non-compete agreements are also unenforceable after the effective date with very limited exceptions, such as for senior executives (workers earning more than $151,164 in “policy-making positions”) and non-compete agreements in connection with the bona fide sale of a business.
Notably, the Final Rule will not apply to active lawsuits for violation of a previously signed non-competition agreement.
Non-solicit agreements are still allowed so long as they are not, as a practical matter, a non-compete. The FTC stated that non-solicitation agreements “are generally not noncompete clauses under the final rule because, while they restrict who a worker may contact after they leave their job, they do not by their terms or necessarily in their effect prevent a worker from seeking or accepting other work or starting a business.”
If you have a non-competition agreement with a current or past employer and want to discuss your rights under the FTC’s new rule, please call us in New York City (646.524.6001) and Cleveland, Ohio (216.600.7994) or contact us any time.