FTC Bans Non-Competes

Following up on our report last month, the FTC has indeed issued its final rule on non-compete agreements. The final rule will be effective 120 days after it is published in the Federal Register, which has yet to be done. is defined as “sweepingly broad”; it both retroactively invalidates ALL EXISTING NON-COMPETES (except for senior executives) and bans any new ones going forward (again, except for those employees defined as senior executives, who are in policy-making positions and who earn at least $151,164 per year – no doubt painstakingly calculated); and it overrules any state or local regulations that are more permissive. 

According to their own website, “The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade. In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.” 

The US Chamber of Commerce has already filed suit to block implementation based upon (1) lack of authority of the FTC to promulgate such a rule and (2) clear Congressional authorization is absent, in violation of the Supreme Court’s “major questions doctrine.” Those are the two “Big Ones”; the Chamber also has several other bases it intends to pursue, and other groups are expected to follow suit, so to speak. Despite the above opposition, employers are advised to take a close look at any non-competes they have in place and make sure that they are at least reasonable in light of increasing scrutiny.