In a historic ruling made public on April 23, 2024, the Federal Trade Commission (FTC) adopted a law that would drastically change how companies and employees interact nationwide. This regulation, which outright forbids most non-compete agreements, marks a radical change in labor laws with far-reaching effects on companies, workers, and the whole economy.
According to the recently finalized regulation, employers who engage in non-compete agreements with their employees violate Section 5 of the FTC Act. The FTC regards this technique as an unfair competition technique. This ban covers the making and enforcing such terms and any claim that such agreements bind an employee. The rule’s main objectives are to increase market competitiveness and remove obstacles to worker mobility.
Most importantly, the rule’s application covers a wide range of people classified as “workers.” This broad term includes regular workers and independent contractors, volunteers, interns, apprentices, and even single owners who offer services to others. Notably, this categorization guarantees that safeguards cover a broad workforce segment regardless of variables like payment status, job title, or legal identity.
The FTC has made a few narrow exceptions to the restriction, notwithstanding its broad scope. These exclusions include situations involving actual company sales, current lawsuits about non-compete agreements, and situations in which there is a sincere perception that the rule is not applicable. Furthermore, if they adhere to state laws and don’t function as non-compete clauses, other agreements, such as nondisclosure agreements, non-solicitation agreements, and payback agreements, could be exempt from the prohibition.
The regulation also provides a different treatment for senior executives, classified as those with policy-making positions and making at least $151,164 in total remuneration. Senior executives are still bound by their current non-compete agreements, but when the regulation goes into effect, it is explicitly forbidden to create new ones for them.
To guarantee adherence, the FTC requires employers to notify impacted employees clearly and noticeably of the unenforceability of any current non-compete agreements by the rule’s effective date. This notification must be sent via several methods, such as hand delivery, mail, email, or text message.
The regulation will go into effect 120 days after it is published in the Federal Register, but there will be debate over how to implement it. The US Chamber of Commerce has filed a lawsuit in the US District Court for the Eastern District of Texas against the FTC, arguing that the rule is unconstitutional. As a result, the rule’s future is still being determined, potentially impacting national labor laws and precedents.
The FTC’s new rule requires employers to provide clear and conspicuous notice to workers affected by non-compete agreements. This mandate underscores the importance of transparency and fairness in employment practices, ensuring that workers are fully informed about their rights and obligations. By empowering workers with essential information, the rule seeks to redress the power imbalance inherent in employer-employee relationships and promote greater equity in the workplace.
Though its enforcement remains dubious, the FTC’s bold move highlights a more significant 21st-century movement to rethink labor laws. By removing obstacles to worker mobility and creating a more competitive market, the regulation might transform the nature of work relationships and stimulate innovation in the US economy for years to come.
