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We previously reported that the Federal Trade Commission was considering a rule that would prohibit the enforcement of non-compete provisions in employment agreements.

On April 23, 2024, the FTC formally adopted this rule. It takes effect 120 days from publication in the Federal Register and prohibits enforcement of most non-competes in employment agreements. This rule applies to employees and independent contractors.

Employers who have existing non-competes with employees or independent contractors are required to provide written notice that the non-compete cannot be legally enforced. 

The only exception applies to Senior Executives, defined as an employee who is in a policy-making position and receives at least $151,164 in annual compensation. Employers cannot enter into new non-compete agreements with Senior Executives after the effective date, but non-competes in existence on the effective date are enforceable.

The rule does not apply to non-competes entered into in connection with the sale of a business. It also does not bar litigation related to a non-compete which accrued before the effective date. 

The rule does not specifically address non-solicitation agreements, and it remains to be seen whether it will be interpreted to include non-solicitation agreements.

There will undoubtedly be aggressive legal challenges to this rule. The U.S. Chamber of Commerce has already sued the FTC to block enforcement of this rule.

Non-competes have traditionally been governed by state laws, not Federal laws or administrative rules. Unlike most areas of law, the enforceability of non-competes can vary greatly from state to state.

We will continue to update our clients and friends on new developments regarding this rule.

Colligan Law is always willing to assist with your employment law needs.