Understanding the New FTC Noncompete Rule: What It Means for Employees and Employers

On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule to ban noncompete agreements nationwide. The FTC’s new rule on noncompetes marks a significant shift in employment law, aiming to balance the interests of workers and employers. While the rule promises to enhance job mobility and economic opportunity for millions of workers, businesses will experience a new landscape of talent management and trade secret protection. They must be prepared if the rule avoids delays due to any legal challenges and takes effect as planned on September 4, 2024. It will be crucial for both employers and employees to stay informed about their rights and responsibilities to navigate this changing environment successfully. 

Noncompete Agreements Defined

A noncompete agreement is a clause typically included in employment contracts to prevent employees from joining competitors or starting a competing business within a specified period and geographic area after leaving a company. These agreements aim to protect the employer’s trade secrets, proprietary information, and investment in employee training.

The Impact of Noncompete Agreements on Employees

Many employees find themselves restricted by noncompete agreements that limit their career mobility. These agreements can force workers to stay in a job they want to leave or bear other significant harms and costs. This might include switching to a lower-paying field, relocating, leaving the workforce, or defending against expensive litigation. An estimated 30 million workers—nearly one in five Americans—are subject to a noncompete, according to the FTC.

The New FTC Rule

Under the FTC’s new rule, scheduled for September 4, 2024, existing noncompetes for most workers will no longer be enforceable and new ones are not allowed. For senior executives, existing noncompetes can remain under the FTC’s final rule. However, employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers must notify workers other than senior executives bound by existing noncompetes that they will not be enforcing any noncompetes against them.

The Ongoing Debate

The move to limit noncompete agreements has sparked considerable debate. Supporters argue that it promotes a fairer job market, enhances worker freedom, and stimulates economic growth by allowing skilled workers to contribute to different companies. Critics claim that it could hurt businesses that rely on noncompetes to safeguard their competitive advantage and invest in employee training.

At PeopleWise HR, we are prepared to help organizations navigate this matter successfully. Contact us today to learn more.