What the FTC’s Final Ruling on Non-Competes Means for Employers
The Federal Trade Commission (FTC) issued its final ruling on non-compete clauses in employment contracts—a 570-page document detailing its decision—this week.
The upshot of the Commission’s ruling is that non-compete clauses are an unjust method of competition and therefore violate Section 5 of the FTC Act, which covers unfair or deceptive acts or practices.
The ruling says that employers are now prohibited from entering into new non-compete agreements with workers (with the exception of some senior executives) on or after the final rule’s official publication date. Here’s a FAQ sheet published by the FTC.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy. Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” said FTC Chair Lina M. Khan in announcing the ruling.
How final is “final?”
The ruling goes into effect 120 days after its publication in the Federal Register, unless otherwise directed by the courts. Keep in mind that the ruling is already being challenged on constitutional grounds and may not go into effect unless/until it survives those legal challenges, which could end up being heard by the U.S. Supreme Court.
What about existing non-compete agreements?
Existing non-competes with workers will be null and void. Here are the details—and exceptions:
- Employers will be required to notify any non-senior executives that an existing non-compete entered into prior to the effective date of the ruling is no longer enforceable.
- The ruling allows existing non-competes with certain senior executives to remain in effect.
- Senior executives affected by the exception are defined in the ruling as those who earn more than $151,164 annually and whose roles are “policy-making positions.”
Which employers are affected by the ruling?
The FTC Act defines corporations as entities that operate for their own profit or the profit of their members.
Are any employers not affected by the ruling?
The FTC doesn’t regulate nonprofit organizations, so the ruling on noncompetes does not apply.
The exception is that the FTC is allowed to assess a nonprofit's status if there’s a question about it and can have jurisdiction over some entities that claim to be nonprofits (e.g., nonprofits organized by and operated for the benefit of for-profit members—so they aren’t operating as true nonprofits).
The FTC estimates that this ruling will result in:
- Reduced healthcare costs
- New businesses created each year
- Increases in innovation
- Higher worker earnings
How prepared was your organization for the FTC ruling? Please weigh in on our brief (just four questions) pulse survey, which will remain open until Sunday, April 28. All survey participants will receive a report of the aggregate data, so feel free to share the link with your professional network.
Contributer: Joe Jamrog joe.jamrog@i4cp.com
Related Resources:
Federal Trade Commission (n.d.) Federal Trade Commission Act Section 5: Unfair or Deceptive Acts or Practices
Federal Trade Commission (2024). Fact Sheet on FTC’s Proposed Final Noncompete Rule
Federal Trade Commission (2024). Non-Compete Clause Rule. Final rule.
i4cp (2023). What HR Should Know About Non-Compete Agreements