Important Update: As of August 20, 2024, a federal court issued an order blocking the Federal Trade Commission (FTC) from implementing its nationwide rule banning noncompete agreements. Accordingly, for the time being, employers will not need to comply with the rule’s notice and other requirements. Employers should continue to monitor legal developments and consult with legal counsel for guidance on laws in states like California, which prohibit non-compete agreements.
On April 23, 2024, the Federal Trade Commission (FTC) approved a final rule that effectively bans workplace non-compete agreements.
The final rule includes:
- Prohibition of New Non-Competes: Employers will not be allowed to enter into new non-compete agreements with any workers once the rule goes into effect.
- Exception for Senior Executives: Existing non-competes will remain enforceable only for “senior executives” — defined as those earning above $151,164 annually and in policy-making roles.
- Mandatory Notice Requirement: Employers must inform both current and former employees that their non-compete clauses are no longer enforceable, except those applicable to certain senior executives.
- Sale-of-Business Exception: The rule includes an exception for non-competes involving the sale of a business.
- No Requirement to Rescind Existing Agreements: Employers are not required to actively rescind existing non-compete agreements.
- Impact on NDAs and Non-Solicitation Agreements: The rule does not affect non-disclosure agreements (NDAs) or non-solicitation agreements unless they restrict, penalize or effectively prevent an employee from seeking, accepting, or starting employment or a business.
The final non-compete agreement rule will take effect 120 days after it is published in the Federal Register (although legal challenges to the rule may delay its effective date). This rule will “supersede” any state laws, regulations, orders or interpretations that conflict with its provisions. However, states can still enforce stricter measures on non-compete clauses if they offer greater protections than those outlined in the final rule.
While a significant development, this federal non-compete rule will have a minimal impact on California businesses, as California law already prohibits non-compete agreements. California law only allows non-compete agreements involving the sale of a business, dissolution of a partnership or when necessary to protect trade secrets.
Significant legal activity is already unfolding around this final rule, like the U.S. Chamber of Commerce actively contesting the regulation. While it’s uncertain whether the final rule will be upheld, employers are advised to proceed as if it will be. Employers with workplace non-compete agreements outside of California should consider consulting with legal counsel to explore options and develop strategies that align with their company’s needs and potential new federal requirements.
Employers can find more information about the final rule by viewing the FTC’s fact sheet and press release.
Vanessa M. Greene, J.D., Employment Law Subject Matter Expert, CalChamber
CalChamber members can read more about Noncompetition Agreements Generally Prohibited in the HR Library. Not a member? Learn how to power your business with a CalChamber membership.
