FTC Finalizes Rule Banning Non-Compete Agreements (Litigation Expected)
On April 23rd, 2024, the Federal Trade Commission (FTC) announced major new restrictions on non-compete agreements. The agency is seeking to dramatically reduce non-compete agreements on the grounds that they improperly stifle competition and reduce wages. With that being said, business interests groups have already sued to block the implementation of the regulation Here, our New Jersey non-compete agreement attorney highlights the key things to know about the FTC rule and what comes next.
What Happened: FTC Passed Broad Federal Rule Dramatically Restricting Non-Competes
In 2023, the FTC initiated the rulemaking process for a proposed (near total) federal ban on non-compete agreements. The rule has now been finalized. In effect, the FTC has barred the use of non-compete agreements in employment context for for-profit companies. There is a narrow exception for for-profit companies in which the signer of the non-compete owns a significant share of the business. The FTC does not have jurisdiction over non-profit organizations. As such, they are not subject to this particular regulation.
The FTC rule barring employer non-compete agreements nationwide is set to take effect 120 days after its official publication to the Federal Register. Regulators contend that non-compete agreements are an unjustified interference with the market. The FTC rule will invalidate virtually all existing non-compete agreements. However, there is an exception for senior executives who have active non-compete agreements. Once the rule takes effect, employers must notify affected workers that their non-compete agreement is no longer legally valid.
What Comes Next: Litigation is Expected Overall Enforceability of New Regulation
It is important to emphasize that extensive litigation is expected regarding this regulation. The United States Chamber of Commerce as well as other parties have already filed a lawsuit seeking to block the prohibition on non-compete agreements from taking effect. It is far from clear that this regulation will take effect in 2024—if it even takes effect at all. The primary legal argument from the Chamber of Commerce is that the rule constitutes an overreach of the FTC’s statutory authority under the Federal Trade Commission Act (FTC Act) and the Administrative Procedures Act (APA).
Opponents of the rule contend that non-compete agreements are crucial for businesses that need to protect intellectual property (IP) and that invest major resources into employee training. They also argue that existing non-competes should not be voided. Our firm will keep a close watch on all legal developments related to any lawsuits filed to stop the FTC ban on non compete agreements. It is possible that this issue could end up being decided by the Supreme Court of the United States.
Contact Our New Jersey & New York Employment Attorney Today
At Poulos LoPiccolo PC, we are a law firm that is focused on solving problems for employees. If you have specific questions about non-compete agreements, please do not hesitate to contact us today for a confidential initial consultation. We provide employment law services throughout New Jersey, including in Monmouth County, Mercer County, Middlesex County, and Ocean County.
