On April 23, 2024, the Federal Trade Commissions (“FTC”) voted 3-2 to issue a final rule banning most non-compete clauses in employment agreements nationwide. The FTC is a federal administrative agency tasked with protecting the public from deceptive or unfair business practices and from unfair methods of competition through law enforcement, advocacy, research and education.

Non-competes are common clauses in agreements between employers and employees that seek to restrict where an employee may work should the employee choose to voluntarily terminate their employment. These clauses limit where employees may work following their separation. They typically must contain a limited geographic area around the old employer, a limited time frame following separation and only for employment in the same industry or field.

The FTC rule prevents companies from using these agreements moving forward and retroactively voids most existing non-compete agreements. Only existing non-competes for senior executives may remain in effect following the final rule, but companies may not enter into new agreements with senior executives.

The FTC anticipates this final rule will lead to new business formation growing by 2.7% per year which equates to 8,500 new businesses created each year. The FTC also expects the rule to result in higher earnings for workers, lower health care costs and increased innovation.

The final rule will become effective 120 days after publication in the Federal Register. However, it is already expected that big business groups will take legal action to block the final rule. Stay tuned for further updates.