Clifford Chance

Federal Trade Commission Approves Non-Compete Ban

April 25, 2024

On April 23, 2024, the U.S. Federal Trade Commission ("FTC") voted 3-2 to approve a rule that, with limited exceptions, prohibits employers from entering into or imposing existing non-compete clauses with employees ("Final Rule"). Under the Final Rule, prohibited non-competes are considered an unfair method of competition under Section 5 of the FTC Act ("Section 5"). The Final Rule provides exceptions for existing non-competes with specifically-defined "senior executives" and non-competes entered into as part of the bona fide sale of a business. The Final Rule is set to go into effect 120 days after it is published in the Federal Registrar, likely in late August. The promulgation of the Final Rule continues the FTC's focus on labor issues; however, it runs counter to decades of federal court decisions where non-competes have been evaluated under the rule of reason (i.e., on a case-by-case basis, considering the reasonableness and market impact of the clause's duration, geographic scope, and business justifications). Several lawsuits have already been filed challenging the authority of the FTC to promulgate the Final Rule, and more are expected to come.

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