FTC votes to ban noncompetes

On April 23, 2024, the Federal Trade Commission (FTC) voted, 3 to 2, to ban nearly all noncompete agreements. The ban is scheduled to become effective on September 4, 2024. Whether the rule will become effective remains an open question because it is already subject to litigation from various business groups, including the U.S. Chamber of Commerce, claiming the FTC doesn’t have the authority to issue the rule.

Highlights of rule

The final rule bans the use of nearly all noncompetes for any worker. The definition of a “noncompete” includes “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” seeking or accepting work in the U.S. with a different person or operating a business after the conclusion of the current employment. The broad definition of “noncompete” includes not just noncompete agreements or noncompete clauses in other agreements but also any terms in handbooks or in workplace policies “whether written or oral.”

The rule’s definition of “worker” is also broad, including any “natural person who works or previously worked, whether paid or unpaid . . . including, but not limited to, whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service.”