Yesterday, the Federal Trade Commission issued a Final Rule essentially banning non-competes for all US workers and invalidating existing non-compete clauses for all US workers other than senior executives.

The rule is slated to go into effect in 120 days, but the U.S. Chamber of Commerce and other organizations have already filed a lawsuit seeking to block the new rule. While we are in the process of reviewing and analyzing the Rule, a few key points of note:

  • “Non-compete clause” is defined as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (A) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (B) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
     
  • The guidance notes that non-solicitation agreements are generally NOT non-compete clauses, but they will be covered by the ban if they “function to prevent a worker from seeking or accepting other work or starting a business after their employment ends.”
     
  • The rule does not apply to a non-compete clause that is entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.
     
  • With respect to “Senior executives” who earn more than $151,164 in “total annual compensation” who are in a “policy-making position,” existing non-compete clauses will not be invalidated, BUT new non-competes are prohibited as of the effective date of the rule.
     
  • “Policy-making position” means a business entity’s president, chief executive officer or the equivalent, any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority, but it does not include a person who has policy-making authority over a subsidiary or affiliate of a business entity that is part of a common enterprise.

 As noted above, the rule does not go into effect for 120 days and the rule has already been challenged in Federal court. We will provide updates as the situation evolves.

Find the text of the Final Rule here: Non-Compete Clause Final Rule