Federal Trade Commission Votes to Prohibit Non-Compete Clauses, Immediately Sued

On April 23, the Federal Trade Commission voted 3-2 to publish its new rule, 29 C.F.R. Part 910, banning almost all non-compete clauses with workers. The rule will take effect 120 days after formal publication in the Federal Register. In short summary –

• Any contract or published rule that forbids or materially discourages a worker from jumping to a competitor is a “non-compete” clause targeted by the rule, even if it has some other name or intended purpose; but –
• Existing agreements with “senior executives” may continue to be enforced;
• Enforcement claims that accrue before the rule’s effective date are unaffected;
• Most trade secret misappropriation protections and claims survive; and,
• Because the rule only covers entities that are subject to FTC jurisdiction, most government agencies and non-profits are exempt.

The U.S. Chamber of Commerce and others promptly sued to block the rule, contending, among other things, that Congress did not give the FTC authority to make substantive rules, or rules of this economic significance, and that this particular rule is arbitrary and capricious. The timelines of similar recent litigation of other edgy rulemaking by this Administration suggests that we may not have a final judicial determination until June 2026. Relief could come sooner if the political winds shift.

Until then, the FTC’s authority to levy stiff fines makes non-compete clause enforcement a significant risk. Re-think and perhaps revise form agreements and related hiring communications. Aim carefully and fire only when necessary.