On Tuesday, April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 along party lines to issue a Final Non-Compete Clause Rule (“the Final Rule”) that will prohibit most employers under the FTC’s authority (with exceptions discussed in our alert) from enforcing, entering into, or attempting to enter into non-compete clauses, including functional non-compete clauses, against workers. Specifically, 120 days after being published in the Federal Register (i.e., in or around the end of August or early September, 2024) the Final Rule will become effective and it will:

  1. Ban all existing “non-competes clauses” (which is broadly defined to include, among other things, forfeiture for competition provisions), except for those with “Senior Executives” as defined in our alert.
  2. Ban entering into new non-competes with all workers, including the aforementioned narrow category of Senior Executives.
  3. Allow for non-competes in the context of a bona fide sale of business (this is the most significant change to the FTC’s proposal that was published 16 months ago and covered in our earlier alert, which limited non-competes in the sale of a business to only those owning 25% or more of the entity, regardless of the entity’s value).
  4. Require employers to notify their employees subject to non-competes that those non-competes are no longer enforceable (the rule provides a model form of notice provision for employers to distribute to employees to comply with this requirement).
  5. Purportedly preempt all state laws except for those more restrictive than the Final Rule.

Given that the Final Rule will not become effective until the late summer or early fall, there is nothing that employers need to do immediately. In the interim, the United States Chamber of Commerce and other organizations have already committed to imminently filing legal challenges to the Final Rule. This can and likely will further delay its implementation. We will keep you apprised of developments.

View this Alert.