FTC Rule To Ban Non-Competes Draws Swift Challenge

The Bottom Line

• The FTC Rule would drastically alter the noncompete agreement landscape and "federalize" this area of law, previously solely governed by state law.
• If the rule survives the pending legal challenge or any other, employment noncompete agreements would be banned nationwide.
• Even if the FTC Rule does not become law, the rule signals that noncompete agreements are increasingly disfavored.
• Employers should monitor the developments and assess potentially utilizing alternatives to industry noncompetes to protect their legitimate business interests.

The U.S. Federal Trade Commission (FTC) issued a final rule purporting to ban employment noncompete agreements nationwide. The FTC Rule passed with a 3-2 vote on April 23, 2024, and is scheduled to become effective 120 days after it is formally published in the Federal Register. The rule is expected to be formally published on May 7, 2024, which would make the effective date September 4, 2024.