FTC issues final rule purporting to ban most noncompete agreements

On April 23, 2024, the Federal Trade Commission (FTC) voted 3 to 2 to issue a new rule that will dramatically affect employers that use noncompete agreements to protect their business interests.

Answering questions about FTC’s new rule

In January 2023, the FTC issued a proposed rule and invited public comments. Now, 14 months and more than 26,000 comments later, it has issued a final rule very similar to the proposed rule. The commission has determined the vast majority of noncompete agreements are an unfair method of competition and, therefore, a violation of Section 5 of the FTC’s governing act.

The only exceptions are noncompete restrictions that are entered into in connection with a sale of a business (or an asset purchase) and those entered into with certain senior executives. Here are the answers to some key questions:

When is the new rule in effect? The rule will take effect 120 days after it’s published in the Federal Register (which will likely be soon). But if the rule is challenged, a court could issue a “stay,” which would halt that timetable.