On April 23, 2024, the Federal Trade Commission issued its final rule banning post-employment non-competes on a nationwide basis. Although it appears unlikely that this administrative rule will survive legal challenges, employers should be aware of these important aspects of the rule:

• The rule becomes effective 120 days from its formal publication in the Federal Register. The rule has not yet been published, but we expect it to be published soon. So the earliest the rule could be effective is late August 2024.  
• The rule states that after the effective date, all new non-compete agreements for all workers (including independent contractors) will be prohibited. Importantly, this is already the case in Minnesota, which banned new post-employment non-competes beginning in July 2023.
• Under the rule, all existing non-competes signed before the effective date would be unenforceable, except for non-competes previously entered into with “senior executives.” A “senior executive” is defined as someone earning more than $151,164 annually and who is in a “policy-making position.”
• Prior to the effective date, employers will be required to notify all employees with a non-compete (except “senior executives”) that the non-compete “will not be, and cannot legally be, enforced against the worker.” The FTC has provided a sample notice for this purpose.
• The rule has important exceptions, similar to those in Minnesota’s 2023 ban. For example, agreements that prohibit employees from soliciting customers or other company employees, confidentiality agreements, and non-compete agreements made in connection with the sale of a business, are not prohibited by the rule (unless such provisions are so broad that they effectively operate as a non-compete).

In releasing the final rule, the FTC published a “fact sheet,” available here, which also includes a link to more than 500 pages of background information, with the text of the final rule beginning on page 561.

As mentioned, the final rule will face significant legal challenges. Yesterday, the U.S. Chamber of Commerce filed a lawsuit in a Texas federal district court. That lawsuit asks the court to declare the final rule unlawful, to stay the final rule’s effective date, and to prohibit enforcement of the final rule.

To prepare for possible enforcement of the rule later this summer, employers may wish to inventory which of their employees are subject to non-competes, identify which employees with non-competes would be “senior executives” under the final rule, and be prepared to provide notice to impacted employees if the final rule is implemented. Given the shifting legal landscape, now is also a good time for employers to confirm that the post-employment restrictions in their employee agreements are reasonable and necessary for the protection of the company’s business interests.

Our employment and labor law team will continue to monitor this rule and the legal actions relating to it. And as we have been doing since the Minnesota non-compete ban went into effect last summer, we are available to help clients draft enforceable agreements that protect their business interests as the law continues to develop.