FTC Approves Ban on Noncompete Clauses

At A Glance

• The Federal Trade Commission (FTC) has approved a ban on non-compete agreements (NCAs).
• The ban applies to all NCAs restricting workers, except existing NCAs with senior executives.
• Agreements to prevent disclosure of confidential information and trade secrets may still be enforced.
• The rule will take effect 120 days after it is published in the Federal Register.

Introduction

On April 23, 2024, the Federal Trade Commission (FTC) approved and issued its final rule that effectively bans employers’ use of all non-compete agreements (NCAs), with very limited exceptions. The final rule is scheduled to go into effect 120 days after it is published in the Federal Register.

Final Regulations

First, this ban covers agreements with any worker, including employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide a service to a client or customer. Moreover, when enacted, existing NCAs for workers who don’t qualify as senior executives (i.e., workers earning more than $151,164 annually in a policymaking position) are effectively banned as well.

Second, the rule also includes an exception for an NCA entered into in the context of a sale of a business.

Third, the rule only permits employers to enforce an NCA when they have a good-faith basis to believe the final rule is inapplicable.

Finally, the FTC intends for this rule to preempt state law only if the state law conflicts with said rule. States with NCA bans include California, Minnesota, North Dakota, and Oklahoma.

Next Steps

Employers should look at existing NCA clauses and provide notice to current and former workers bound by an NCA that they won’t be enforcing any NCA restrictions against those workers.

Thank you for choosing Paylocity as your Payroll Tax and Human Capital Management partner.

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.