FTC Votes to Ban Non-Compete Clauses: What Employers Need to Know

In a significant move aimed at promoting competition and labor mobility, the Federal Trade Commission (FTC) recently voted to prohibit non-compete clauses/agreements. This decision marks a pivotal moment in the ongoing debate surrounding the use of non-compete agreements and signals a shift towards greater employee freedom.

The new rule was published in the Federal Register on May 7, 2024, and becomes effective after 120 days on September 4, 2024.  However, enforcement could be delayed due to ensuing legal challenges. The US Chamber of Commerce filed a lawsuit in Texas federal court against the FTC to block their non-compete ban and seek a preliminary injunction. They contend that the FTC does not have the authority to issue rules defining unfair methods of competition, as it can lead to regulating or banning any business practice without congressional approval, and it is overstepping its authority. Thus, whether the rule is ultimately enforceable or not is yet to be determined.

Despite the uncertainty of this new rule, it is important for employers to review their current employment agreements and proactively consider what should be included in the new agreements to ensure continued business protection. While employers may be required to adjust their policies and agreements in response to this regulatory change, the focus remains on protecting proprietary information and fostering innovation while promoting employee mobility. Further the FTC has specific employee notification requirements that must be communicated by September 4, 2024, should the rule become final.

Below are key action steps to consider while awaiting the court’s final ruling:

1. Draft/update current policies and employment agreements while considering other business protections such as non-disclosure agreements (NDAs), non-solicitation agreements, and confidentiality clauses.
2. Draft employee communication documents specific to FTC requirements.
3. Enhance employee retention and foster innovation to ensure an engaged workforce driven by employee satisfaction, positive work culture, career development, and competitive pay and benefits.
4. Consult with legal counsel or outside HR consultants to ensure legal compliance.

Employers who proactively manage the potential impact of the FTC’s rule on non-compete clauses and stay abreast of any regulatory updates to ensure legal compliance will best ensure a balanced approach to employee mobility and business protection. By embracing this shift and proactively preparing for the potential regulatory change, employers can navigate the evolving regulatory landscape and foster a workplace environment that promotes growth, innovation, and fair competition.

If you’d like to collaborate with an HR professional with over 20 years of experience, about your company’s approach to this upcoming change, contact Brenda Baker at bbaker@jfcglobal.com or 717-761-8095.