On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning most noncompete agreements. Under the new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. While existing noncompetes for senior executives can remain in force, employers are prohibited from entering into or attempting to enforce any new noncompetes, even for senior executives.
Under the rule, employers will be required to provide notice to most workers who are subject to an existing noncompete that they will not be enforcing them. The FTC issued model language for the notice.
The FTC concluded that noncompetes tend to:
- Negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers; and
- Negatively impact competitive conditions in product and service markets, inhibiting new business formation and innovation.
It also acknowledged that noncompetes may lead to increased market concentration and higher prices for consumers.
The FTC found that employers can adequately protect their interests using trade secret laws and non-disclosure agreements. It also noted that to retain employees, businesses can compete for them by improving wages, benefits and working conditions.
The final rule will become effective 120 days after publication in the Federal Register. The rule will apply to most employers in most, but not all, industries. Excluded from the FTC’s purview are banks, savings and loans, federal credit unions, common carriers, air carriers, and certain non-profits.
It is expected to be challenged in court. While this plays out, employers may want to:
- Review all existing noncompetes
- Review all handbooks and workplace policies that address noncompetes
- Be cautious about attempting to enforce a noncompete, particularly those with a non-executives
- Review alternatives to noncompetes, such as agreements that protect trade secrets or confidential information and non-disclosure agreements
- Engage counsel to review your agreements and policies for compliance with the new rule
Disclaimer: This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between Galloway and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions.
Doris Bobadilla, Esq.
Offices: Mandeville, LA; New Orleans, LA; Gulfport, MS, Ft. Lauderdale, FL
dbobadilla@gallowaylawfirm.com | 985-674-6680
Wendell Hall, Esq.
Office: Mandeville, LA
whall@gallowaylawfirm.com | 985-674-6680