This week, the Federal Trade Commission (FTC) issued a final rule banning all non-compete agreements. Last year, the FTC issued a proposed rule regarding the banning of non-compete agreements, and the FTC received several thousand comments. In issuing the final rule, the Commission is banning non-compete agreements for all workers and has explained that non-compete agreements are “an unfair method of competition and therefore in violation of Section 5 of the Federal Trade Commission Act, for employers to enter into non-compete [agreements] with workers and to enforce certain non-compete [agreements].”
Under the final rule, employers will be prohibited from entering into new non-compete agreements with workers on or after the effective date of the rule. The rule broadly defines workers to include “employees, independent contractors, interns, externs, volunteers, apprentices, or sole proprietors.” Employers are defined under the rule to include “natural persons, partnerships, corporations, associations, and other legal entities within the Commission’s jurisdiction” and applies to most businesses. The rule also applies to franchisees and franchisors and impacts approximately 30 million workers.
Additionally, employers are required under the rule to provide notice to workers bound to an existing non-compete agreement that the agreements will not be enforced against them in the future. Existing non-compete agreements for workers in “senior executive” positions, earning more than $151,164 and who are in “policy making positions” may remain in effect and are not invalidated by the final rule.
To learn more about the Final Rule, please see the FTC Fact Sheet, and additional information regarding the non-compete ban. The rule will be effective beginning in mid-August. The final rule also supersedes all state laws and has a preemptive effect.
NAR is currently reviewing the rule and its impact but will continue to provide additional updates regarding the rule.