The Federal Trade Commission (FTC) has recently enacted a rule restricting for-profit employers from initiating new non-compete agreements with employees, including senior executives.

The Federal Trade Commission (FTC) has recently enacted a rule prohibiting for-profit employers from initiating new non-compete agreements with employees, including senior executives.

Existing non-compete agreements with senior executives remain enforceable, while employers must inform all other employees of the unenforceability of their existing agreements by the effective date.

The rule will take effect 120 days after its publication in the Federal Register, though immediate court challenges are expected, potentially affecting the rule's implementation.

The Federal Trade Commission (FTC) has announced a significant regulatory change, issuing a rule on April 23, 2024, that restricts the use of non-compete agreements in employment contracts. This ruling, which follows a 2021 executive order urging agencies to foster competition, represents a notable shift in labor regulations. Chair Lina Khan emphasized the importance of economic liberty, stating that non-compete agreements hinder workers' ability to seek better opportunities and impede healthy competition in the labor market.

The newly enacted rule applies to all for-profit employers and prohibits the initiation of new non-compete agreements with employees, including senior executives. However, existing non-compete agreements with senior executives will remain valid. Employers are required to notify all other employees regarding the unenforceability of their existing agreements before the rule's effective date. Notably, the FTC's authority does not extend to non-profit organizations, and limited exceptions apply to agreements arising from business sales or franchise relationships.

While the rule is set to take effect 120 days after publication in the Federal Register, challenges from business groups, such as the U.S. Chamber of Commerce, are anticipated. These legal challenges may result in delays or modifications to the rule's implementation, pending court rulings. Employers should closely monitor developments and consider adjusting their employment practices in anticipation of these regulatory changes.

Where Do I Get Additional Information?

For further guidance on compliance with the new FTC rule and its potential impact on your organization, please reach out to our team at Kennedy Berkley, Attorneys at Law at 785.825.4674