Feds Ban Most Noncompete Agreements

The U.S. Federal Trade Commission issued a final rule April 23 that bans most noncompete agreements.

The commission voted 3-2 to approve the wide-ranging rule, which bans for-profit employers from issuing any new noncompete agreements.

It also makes almost all existing agreements unenforceable after the rule’s effective date, set at 120 days from publication in the Federal Register.

Current noncompete agreements for senior executives—defined as those in a “policymaking position” earning more than $151,164 annually—will be allowed.

Employers must also provide notice to workers other than senior executives who are bound by existing noncompetes that they will not be enforcing any agreements.

The commission provided model language for that notice requirement.

‘Dangerous Precedent’

U.S. Chamber of Commerce president and CEO Suzanne Clark said the chamber will “sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.”

“The Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” she said in a statement.  

“Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules.

U.S. Chamber of Commerce CEO Suzanne Clark said the chamber will “sue the FTC to block this unnecessary and unlawful rule.”

“Yet, today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.”

CBIA president and CEO said “the decision sets a dangerous precedent that can lead to harm for employers, workers, and our economy.”

“Noncompete agreements provide important protections for employers, and there are well-established rules for their use to ensure that employees are protected as well,” he said.

State Laws

Connecticut legislation banning a range of noncompete agreements stalled earlier this month despite gaining approval from a key General Assembly committee.

HB 5269, which the Labor and Public Employees Committee approved in March on an 8-4 party line vote, made noncompete and exclusivity agreements unenforceable under certain conditions.

Connecticut legislation banning a range of noncompete agreements stalled earlier this month.

However, the bill was referred by the House to the Judiciary Committee, which did not act on it before its deadline for reporting legislation, effectively killing the measure for this year.

The FTC’s final rule overrides state laws, with noncompete bans currently in effect in California, North Dakota, Oklahoma, while Colorado, Maryland, Oregon, and Rhode Island allow some agreements.

New York Governor Kathy Hochul vetoed legislation last December that completely banned noncompetes in that state.

‘Unfair Competition’

The FTC action comes more than a year after the agency issued a proposed rule, which drew more than 20,000 public comments.

The final rule represents a slight narrowing of that proposal, which sought to make it illegal for an employer to enter into, or attempt to enter into a noncompete with a worker, maintain a noncompete with a worker, or represent that a worker is subject to a noncompete.

FTC officials said the rule is based on a finding that noncompetes violate the Federal Trade Commission Act.

The commission also eliminated a proposed provision that required employers to legally modify existing noncompetes by formally rescinding them.

FTC officials said the rule is based on a finding that noncompetes violate the Federal Trade Commission Act as they constitute an unfair method of competition.

“The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market,” commission chair Lina Khan said in a statement.