FTC Implements Nationwide Ban on Non-Compete Agreements: Impact on Employers and Workers

The Federal Trade Commission (FTC) has officially approved a new rule that bans the use of non-compete agreements in all employment contexts, signaling a significant shift in the regulatory landscape affecting businesses across industries. The rule, initially proposed in January 2023, reflects the Biden Administration‘s push to enhance competition and economic justice, setting the stage for potential legal challenges from the US Chamber of Commerce and other stakeholders.

Chair Lina Khan emphasized the importance of empowering workers with the flexibility to change jobs freely in a competitive economy. The final rule, approved by a 3-2 vote among FTC Commissioners, effectively prohibits new non-compete agreements in any for-profit employment setting, including independent contractors. Notably, existing non-competes for senior executives can be enforced, while other workers must be informed that their agreements are no longer binding.

Employers impacted by the rule now face a fundamental restructuring of their employment practices, as the rule aims to promote talent mobility and innovation. The ban on non-compete agreements extends to most workers, with limited exceptions for situations like business sales and franchising agreements. Companies will have 120 days, post-publication in the Federal Register, to comply with the rule’s provisions.

The upcoming legal battle over the FTC rule, expected to be initiated by the US Chamber of Commerce, sets the stage for a potential showdown in the courts. If the rule faces judicial scrutiny, its enforceability will be determined by legal interpretation and precedent. In the interim, employers are advised to familiarize themselves with the rule’s implications and seek legal counsel to ensure compliance with the forthcoming changes.

For further insights and guidance on navigating the implications of the FTC’s new non-compete ban, businesses can reach out to legal experts at Holland & Knight’s employment law practice. The evolving regulatory landscape underscores the need for proactive adaptation to ensure continued compliance and competitiveness in the business environment.