Federal Trade Commission Non-compete Ban

What is the FTC Non-Compete Ban?

Partial Summary of the FTC Ban

The Federal Trade Commission adopted a comprehensive ban on new non-competes with all workers, including senior executives. The final rule provides that it is an unfair method of competition—and therefore a violation of Section 5—for employers to enter into Non-competes with workers.

Unless a court intervenes, the new rule becomes effective 120 days subsequent to April 23, 2024.

Here are some of the legal parameters of the FTC non-compete ban:

Non-Compete Defined (16 CFR Part 910.1)

(1) A term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from:

(i) 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

(ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.

(2) For the purposes of this part 910, term or condition of employment includes, but is not limited to, a contractual term or workplace policy, whether written or oral.

Definitions of Persons Affected by the Ban – Abbreviated

Officer: A president, vice president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer, and any natural person routinely performing corresponding functions with respect to any business entity whether incorporated or unincorporated.

Person: Any natural person, partnership, corporation, association, or other legal entity within the Commission’s jurisdiction, including any person acting under color or authority of State law.

Preceding Year: A person’s choice among the following time periods: the most recent 52-week year, the most recent calendar year, the most recent fiscal year, or the most recent anniversary of hire year.

Senior Executive: A worker who:

(1) Was in a policy-making position; and

(2) Received from a person for the employment:

(i) Total annual compensation of at least $151,164 in the preceding year; or

(ii) Total compensation of at least $151,164 when annualized if the worker was employed during only part of the preceding year; or

(iii) Total compensation of at least $151,164 when annualized in the preceding year prior to the worker’s departure if the worker departed from employment prior to the preceding year and the worker is subject to a non-compete clause.

Worker: A natural person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status under any other State or Federal laws, including, but not limited to, whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides a service to a person. The term worker includes a natural person who works for a franchisee or franchisor, but does not include a franchisee in the context of a franchisee-franchisor relationship.

Unfair Methods of Competition (16 CFR Part 910.2) – Abbreviated

(a) Unfair methods of competition—(1) Workers other than senior executives. With respect to a worker other than a senior executive, it is an unfair method of competition for a person:

(i) To enter into or attempt to enter into a non-compete clause;

(ii) To enforce or attempt to enforce a non-compete clause; or

(iii) To represent that the worker is subject to a non-compete clause.

Exceptions to the FTC Non-Compete Ban (16 CFR Part 910.3)

(a) Bona fide sales of business. The requirements of this part 910 shall 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.

(b) Existing causes of action. The requirements of this part 910 do not apply where a cause of action related to a non-compete clause accrued prior to the effective date.

(c) Good faith. It is not an unfair method of competition to enforce or attempt to enforce a non-compete clause or to make representations about a non-compete clause where a person has a good-faith basis to believe that this part 910 is inapplicable.

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