RBS News

Written By: Peter M. O’Grady, Esq. | 2024-04-30

FTC Votes to Ban Noncompete Agreements

The Federal Trade Commission voted to approve a final rule banning nearly all noncompete agreements throughout the country in what will surely spur litigation and could cause a dramatic upheaval in corporate America as we knew it. This rule becomes effective 120 days after the date it is published in the Federal Register which has not happened yet. Opponents of the law vowed to immediately challenge the rule in court once published which will likely delay the effective date and could potentially overturn the rule entirely.

The FTC claims, as a basis for the rule, that approximately 30 million American workers, or one in five, are subject to compete agreements and this new rule will promote competition, protect workers rights to change jobs and advance new business formation. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market” stated FTC Chair Lina M. Khan. The FTC believes the new rule will help to create 8,500 plus new businesses each year, increase the average employee’s salary by $524.00 annually, and lower health care costs by up to $194 billion over the next decade.

Opponents of the rule claim the FTC overstepped its authority and that the rule will actually injure companies. Suzanne P. Clark, CEO of the U.S. Chamber of Commerce, accused the FTC of “a blatant power grab that will undermine American businesses’ ability to remain competitive.” Clark has vowed to challenge the rule in court and suit is expected to be filed shortly after the Federal Register publishes the rule.

The 3-2 Commission vote followed party lines leaving the proposed rule largely intact but does provide one exception. Under this new rule, only existing noncompete agreements for senior executives will remain effective but any noncompete agreement executed after this rule will have no effect. Senior executives are those employees earning $151,164.00 or more annual who are in policy-making positions.

The final rule requires employers to notify any employee, outside of the above exemption, that the existing noncompete will not be enforced against them in the future. It fails to take into account the business justification or reasonableness of the agreement, and any consideration paid in exchange for the promise not to compete.

Given the threatened litigation and uncertainty of the final rule, companies and employers should continue utilizing non-compete agreements as they have been in the normal course of business. Under Ohio law, all non-compete agreements must be narrowly tailored to protect legitimate business interests, be effective for a reasonable period of time, and cover a reasonable geographical scope.

As always, the attorneys at RBS are available to help navigate these ever-evolving

changes. Please reach out to RBS with any and all questions.