The FTC’s Rule Barring Non-Compete Would Nullify Millions of Existing Contracts (Litigation Expected)

In April of 2024, the Federal Trade Commission (FTC) announced a rule banning non-compete agreements nationwide. Notably, the regulation—which is set to take full effect 120 days after its official publication to the Federal Register—nullifies most existing employee non-compete contracts. Within this blog post, our Boca Raton employment agreement attorney explains the rule, its retroactive application, and what is likely to come next.

Background: FTC Moves to Prohibit Most Employee Non-Compete Agreements Nationwide 

Following more than a year of rulemaking procedures, the FTC has taken a major step toward banning most non-compete agreements across the United States. The agency asserts that these agreements stifle competition and limit workers’ ability to move freely between jobs. As finalized, the rule will bar for-profit businesses from signing non-compete agreements with employees. There is a very narrow exception for employee-owners of a business who have a 25 percent stake.

Note: The FTC lacks the regulatory authority to impose a ban on nonprofit organizations.

The Timeline: Regulation Will Take Effect 120 Days After Publication

The rule prohibiting non-compete agreements will take effect 120 days following its publication in the Federal Register. The period is intended to give businesses sufficient time to comply with the new regulations and to reevaluate their existing employment contracts. Publication is expected on May 7th, 2024, which would make the effective date September 4th, 2024.

 Major Issue: Rule Nullifies Most Existing Employee Non-Compete Agreements 

What about non-compete agreements that have already been signed and are currently legally valid? The FTC is clear: The regulation applies retroactively. Upon taking effect, the rule will nullify most of these agreements currently in force, except in very limited and specific circumstances. In effect,  millions of workers nationwide—including tens of thousands in Florida—who are currently bound by non-compete clauses will soon be free from these restrictions. The regulation requires covered employers to notify affected employees that their non-competes are no longer valid.

 What to Watch For: Business Groups Have Already Sued in an Effort to Block the Law 

It is important to emphasize that the FTC’s regulation has not taken effect yet. Further, business interest groups—including the Chamber of Commerce—have filed a lawsuit to stop the implementation of the regulation. These groups argue that non-compete agreements are essential for protecting trade secrets and maintaining competitive advantages. The litigation is expected to focus on the authority of the FTC to enact such a sweeping prohibition. It is possible that a federal court could delay or even block the regulation from taking effect. Our firm will keep a close watch on this matter.

Get Help From a Non-Compete Agreement Attorney in Boca Raton Today

At Perkins Law, our Florida employment agreement lawyer has the skills and experience to handle issues related to non-compete contracts. Have questions about an existing non-compete? We can help. Contact us today to set up your completely confidential initial appointment. With an office in Boca Raton, we help clients navigate employment agreements throughout South Florida.

Source:

ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes