On Tuesday, April 23, the Federal Trade Commission (FTC) voted 3-2 to ban non-compete agreements that restrict employees from working for competitors or starting a competing business after they leave a job. The non-compete ban will become effective 120 days after the final rule is published in the Federal Register.

Under the final rule, existing non-compete agreements for the vast majority of workers will no longer be enforceable except for senior executives. Existing non-competes for senior executives can remain in force, but employers are prohibited from entering new non-competes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.

Employers will be required to notify current and past employees that existing noncompete agreements will not be enforced unless they are a senior executive. To help comply with this requirement, the FTC provided model language that employers can use to communicate to workers. Additionally, the rule does not cover franchisee noncompete clauses, nor does it cover tax-exempt nonprofit organizations.

A “non-compete” clause is defined as a “term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (A) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (B) operating a business in the United States after the conclusion of the employment that includes the term or condition.” A term or condition of employment “includes, but is not limited to, a contractual term or workplace policy, whether written or oral.”

The FTC determined that noncompete clauses are exploitative, anticompetitive, and coercive for junior level employees and unnecessary for the protection of trade secrets given the availability of non-disclosure agreements and confidentiality clauses.

The U.S. Chamber of Commerce has already announced that it will file a lawsuit against the FTC to block the non-compete ban. NLBMDA opposes FTC overreach and supports the U.S. Chamber’s litigation that the agency lacks constitutional and statutory authority to write its own competition rules.

You can read the full text of the final rule by clicking here and the FTC’s official press release by clicking here.

For any questions, please contact NLBMDA at membersupport@dealer.org.