---
url: 'https://www.fmjlaw.com/breaking-ftc-bars-employers-from-imposing-non-compete-agreements/'
title: 'BREAKING: FTC Bars Employers from Imposing Non-Compete Agreements'
author:
  name: Adam
  url: 'https://www.fmjlaw.com/author/adam-brownfmjlaw-com/'
date: '2024-04-25T22:26:46+00:00'
modified: '2024-04-30T13:44:53+00:00'
type: post
summary: The FTC has voted to ban non-compete agreements.  Click here to learn more.
categories:
  - Legal Alert
  - Legal Alert
  - Newsroom
  - Thought Leadership
tags:
  - Employment
  - HR
  - non-compete
  - noncompete
published: true
---

# BREAKING: FTC Bars Employers from Imposing Non-Compete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) voted, on a slim 3-2 margin, to issue the final version of its Non-Compete Clause Rule, a nationwide regulation that will ban any new non-compete agreements with workers and limit the ability to enforce those signed prior to the rule’s effective date. This development comes just a little under a year after Minnesota’s non-compete ban went into effect on July 1, 2023.

The FTC, which is the federal agency in charge of enforcing antitrust laws in the U.S., first announced its proposed rule to ban non-compete clauses in January 2023, based on the agency’s stance that the use of such clauses in certain circumstances constitutes an unfair method of competition under existing federal law. The final rule deviates from the original proposal in a few key ways, including the addition of a provision that allows enforcement of existing (but not new) non-compete agreements with senior executives, and the expansion of a carveout for non-compete agreements between sellers and buyers of businesses.

In a press release announcing the issuance of the final Non-Compete Clause Rule, the FTC estimated that nearly one in five Americans – approximately 30 million workers – are subject to non-compete restrictions. FTC Chair Lina Khan stated that the final rule “will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.” The FTC further estimated that by banning non-competes, the U.S. would see a 2.7% growth in new business formation each year, higher earnings for workers (including, among other things, an increase of $524 per year for the average worker), decreased health care costs of up to $194 billion over the next 10 years, and an increase of 17,000 to 29,000 more patents each year over the next 10 years.

Highlights of the FTC’s final rule include:

- A “non-compete clause” is defined as a term or condition of employment (including, without limitation, a contractual term or workplace policy, whether verbal or in writing) 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 the employment that includes the term or condition.”

- As of the effective date of the final rule, all new non-compete clauses with workers are prohibited. Existing non-competes that were already in effect for “senior executives” (as that term is defined in the rule) will be permitted to remain in effect and enforceable, but employers will be prohibited from enforcing existing non-competes for all other workers.

- As defined in the final rule, “workers” include employees, independent contractors, volunteers, and interns, among others.

- Employers will be required to provide written notice to any workers bound by an existing non-compete (excluding senior executives) to inform them that the non-compete clause will not be enforced. Model language is included in the final rule for employers to use in the required written notice to workers. State laws that conflict with the final rule are preempted by the final rule’s regulations.

Minnesota employers have already been subject to restrictions on the use of non-compete clauses. On July 1, 2023, Minnesota became the fourth state in the U.S. to adopt a broad ban on non-competes. The Minnesota non-compete ban applies to nearly all employment agreements signed by employees after that date. The FTC’s final rule is similar to the Minnesota ban in that it only applies to true non-compete provisions, and does not invalidate non-solicitation, trade secret, or confidentiality agreements. Some other key similarities and differences between the Minnesota non-compete ban and the FTC’s final rule to be aware of include the following:

- As explained above, the FTC’s final rule applies to a broad range of individuals who fall within the rule’s definition of “worker.” Minnesota’s statute applies to “employees,” which is defined under the statute to include an “individual who performs services for an employer, including independent contractors.”

- The FTC’s final rule applies retroactively to invalidate existing non-competes for workers other than senior executives, whereas Minnesota’s statute is not retroactive and only applies to non-competes entered into after the effective date of the statute. Both laws prohibit new non-compete clauses with any employees or workers (as applicable) following the respective law’s effective date.

- Both the FTC’s final rule and the Minnesota statute provide for an exception to allow the use of non-compete clauses in the context of a business sale. However, while Minnesota’s exception applies to a non-compete signed by a seller that is “agreed upon during the sale of a business” or “agreed upon in anticipation of the dissolution of a business,” the FTC’s final rule provides an exception for non-compete clauses entered into by a person selling their ownership interest pursuant to a “bona fide sale of a business entity” or pursuant to the sale of all or substantially all assets of a business entity. How each of these exceptions will be interpreted by courts remains to be seen.

- Both laws specify that they do not prohibit the use of non-solicitation agreements, non-disclosure agreements, or agreements to protect trade secrets.

The FTC’s new final rule is currently scheduled to take effect 120 days after it is published in the Federal Register, which is expected to occur in the coming days. However, various efforts to challenge the final rule and block its implementation are already underway, including a lawsuit filed this week by the U.S. Chamber of Commerce in the U.S. District Court for the Eastern District of Texas, and another filed by tax services firm, Ryan LLC, in the U.S. District Court for the Northern District of Texas. Many legal observers expect that one or more of these district courts will stay implementation of the regulation pending adjudication of the case. If a stay is issued before the 120-day notice period, the regulation will not take effect (if at all) until the applicable court makes a decision on the merits of the case before it.

With the Minnesota non-compete ban and the new FTC Non-Compete Clause Rule, the shifting landscape for restrictive covenants has made agreements including confidentiality, non-solicitation, non-disclosure, and trade secret clauses even more important. If you have questions or concerns about any of these new and ongoing changes, please reach out to [FMJ’s HR & Employment Law Practice Group](https://www.fmjlaw.com/practice-area/hr-employment/). They would be happy to help you with your current agreements and procedures, and they can help you work through strategies for the future.

[](https://www.addtoany.com/add_to/facebook?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fbreaking-ftc-bars-employers-from-imposing-non-compete-agreements%2F&linkname=BREAKING%3A%20FTC%20Bars%20Employers%20from%20Imposing%20Non-Compete%20Agreements)[](https://www.addtoany.com/add_to/twitter?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fbreaking-ftc-bars-employers-from-imposing-non-compete-agreements%2F&linkname=BREAKING%3A%20FTC%20Bars%20Employers%20from%20Imposing%20Non-Compete%20Agreements)[](https://www.addtoany.com/add_to/email?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fbreaking-ftc-bars-employers-from-imposing-non-compete-agreements%2F&linkname=BREAKING%3A%20FTC%20Bars%20Employers%20from%20Imposing%20Non-Compete%20Agreements)[](https://www.addtoany.com/add_to/linkedin?linkurl=https%3A%2F%2Fwww.fmjlaw.com%2Fbreaking-ftc-bars-employers-from-imposing-non-compete-agreements%2F&linkname=BREAKING%3A%20FTC%20Bars%20Employers%20from%20Imposing%20Non-Compete%20Agreements)