Prohibition of Non-Compete Agreements: FTC’s new rule
On 23 April 2024, the US Federal Trade Commission (FTC) adopted a final rule, by a majority of one vote, that will prohibit companies nationwide from entering into or attempting to enforce non-compete agreements with employees or officers. The final rule will become effective 120 days after its publication in the Federal Register.
Regarding existing non-competes, only those agreements with senior executives will remain enforceable. Employers will also be required to notify workers (other than senior executives) who are subject to existing non-competes that those agreements are no longer enforceable.
The final rule, if upheld in court, will force U.S. employers to refine their post employment agreements and find new methods to protect their interests.Joshua Zuckerberg, Partner, Pryor Cashman LLP*, New York, USA
Companies will take the non-compete clause to court
However, before employers make any changes to their restrictive covenants, they should be advised that given the final rule’s potentially seismic impact on post-employment restrictions across the nation, we fully expect to see it quickly challenged in court, explain the experts at Pryor Cashman LLP*.
Many jurisdictions are already sceptical of non-competes generally and have grown increasingly hostile to overly broad non-competes; but the final rule, if upheld, will certainly force employers throughout the United States to greatly refine their post-employment agreements and find new methods to protect their interests.
The final rule is new, and additional guidance concerning its application may be forthcoming. Employers should follow any developments concerning the final rule closely and begin to consider how to revise their post-employment agreements and provide notice to employees subject to potentially unenforceable non-competes should the final rule become effective and survive any legal challenges (more on this in the box).
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More information on the topic:
For reference and/or further reading, the final rule may be accessed here:
For further information please contact:
Joshua Zuckerberg, Partner, Pryor Cashman LLP*, New York, USA
Email: jzuckerberg@pryorcashman.com
Vanessa P. Avello, Associate, Pryor Cashman LLP*, New York, USA
Email: vavello@pryorcashman.com
*Ecovis cooperates with Pryor Cashman LLP (www.pryorcashman.com), a full-service, US-based law firm with offices in New York City, Los Angeles and Miami.