Spring 2024 arrived with significant changes to federal regulations affecting employees and contractors. These changes include a new regulation that seeks to invalidate non-compete agreements.

Are Non-Compete Agreements Still Valid?

The Federal Trade Commission (“FTC”) recently announced a final rule which provides that it is an unfair method of competition for employers to enter into non-compete clauses with employees and independent contractors. 

What is a Non-Compete Clause?

Non-compete clauses are commonly contained within an employment agreement between an employee and employer, and they are designed to protect the employer’s financial interests and proprietary information. For more general information about non-compete clauses and agreements, please refer to our prior article.

When will the Ban on Non-Competes go into Effect?

Barring postponement or invalidation by the courts (more on this below), the FTC’s rule will go into effect in four short months, on September 4, 2024. 

According to the rule, non-compete agreements entered into on and after the September 4, 2024 effective date will be unenforceable. 

What About Non-Competes that Pre-Date the New Rule?

Under the rule, the enforceability of non-competes entered into before September 4, 2024, will depend on the status of the individual subject to the non-compete. For senior executives, the enforceability of earlier non-competes remains unchanged. For everyone else, the rule aims to invalidate non-compete agreements entered into before September 4, 2024.

Are there Any Exceptions to the Rule?

Yes.  While it is clear that the intent of the final rule is to invalidate the majority of non-compete provisions, there are important exceptions. For example, the rule does not apply to:

  • Certain non-compete clauses negotiated as a part of the sale of a business. 
  • Causes of action involving the validity and/or enforcement of non-compete clauses that accrued prior to the effective date. This means that if a worker has already violated an existing and otherwise valid non-compete agreement, then the employer may still pursue a lawsuit against the worker for the violation.  

Has Anyone Challenged the FTC’s Final Rule?

Yes.  As is common with major regulatory changes, the FTC’s final rule is subject to multiple legal challenges. These challenges will almost certainly delay the effective date of the rule. 

In fact, many legal experts anticipate that the courts will ultimately invalidate the entire rule so that it never goes into effect. Given these challenges and exceptions noted above, it is highly recommended that you consult with one of the several experienced employment lawyers at Block & Associates before reaching any conclusions about the validity of non-compete clauses to which you or your business may be a party.

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