FTC Bans Non-Compete Agreements

Last week, the Federal Trade Commission (FTC) voted to approve a final rule that effectively bans employers’ use of noncompete clauses, both prospectively and retroactively. Once the rule goes into effect, most existing noncompete agreements between employers and workers will no longer be enforceable and federal law will supersede any state law surrounding noncompete agreements. Existing noncompete agreements between employers and senior executives are exempt from the retroactivity of the rule, but future agreements are prohibited. The rule broadens the definition of noncompete to capture any contractual provision that “has the effect of prohibiting the worker from seeking or accepting employment.”

The U.S. Chamber of Commerce and other business associations immediately filed suit against the FTC over the final rule in a Texas federal court, arguing that the FTC lacks the authority to implement such a rule. In a statement, the U.S. Chamber said, “The Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive.

The rule is set to go into effect 120 days after it is published in the Federal Register, although implementation will be delayed as a result of lawsuits.

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