Future of noncompetes hangs in the balance: Overview of FTC’s final rule

On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning noncompete agreements for almost all employees of for-profit employers after concluding that noncompete agreements are unfair methods of competition. Unless courts intervene, the final rule will become effective on September 4, 2024, banning all new noncompete agreements and invalidating most existing agreements. The move is unprecedented because it applies to an area traditionally governed by states and relies on the FTC’s “general substantive rulemaking power.” Multiple lawsuits seeking to stop the FTC’s final rule remain pending.

Background

Procedurally, the FTC’s attempts to ban noncompete agreements began in January 2023, when it issued a proposed rule subject to a 90-day public comment period. According to the FTC, the proposed rule received over 26,000 comments, 25,000 of which were supportive of the ban. It reviewed the 26,000 comments and issued the final rule, subject to few changes (related to the “senior executive” exception and notice provisions discussed below). In issuing the final rule, the FTC relied upon §§ 5 and 6(g) of the Federal Trade Commission Act and its “general substantive rulemaking power.”