As most business clients now know, the Federal Trade Commission has issued a final rule that bans the use of nearly all non-compete agreements nationwide.
The ban, which applies to both prospective and existing non-compete agreements, classifies such agreements between employers and workers as unfair methods of competition. It is expected to have a wide-ranging impact on business owners who have historically relied on these agreements to protect their business interests, value and trade secrets.
Despite a nearly complete ban, set to become effective Sept. 4, there are some exceptions that business owners can continue to rely on — if they satisfy the detailed criteria that the FTC has put into place going forward.
The FTC's Ban: Background
According to the FTC, the ban will currently affect about 30 million American workers who are subject to non-compete agreements. The rule extends to both standalone non-compete agreements and to clauses that would penalize a worker or seek to prevent a worker from obtaining employment with another business entity.
While most NDAs and non-solicitations are subject to the ban, the FTC has broad authority to take action against employers in situations who impose "functional non-compete agreements" that prevent workers from taking other employment or operating a business.
Employers are required to notify employees who are subject to non-compete agreements that they will not be enforcing those agreements. Under the previous proposal, the FTC would have required employers to rescind any existing non-compete agreements rather than simply providing notice of non-enforcement.
