FTC Rule Banning Non-Competes to Become Effective But is Subject to Legal Challenge

   I have defended numerous employees accused by their former employers of violating non-competition agreements.  In several recent cases, I have successfully persuaded trial courts to rule that all or part of the at issue agreements be invalidated because they are overbroad.

  On April 23, 2024, the Federal Trade Commission voted to finalize a new rule to prohibit employers from enforcing noncompetes against workers.  The rule is set to become effective 120 days after its publication in the Federal Register.  There have already been several legal challenges seeking to invalidate the rule.  

   The rule defines a non-compete as an agreement that prohibits or prevents a worker from seeking or accepting a subsequent job.  Importantly, this would prohibit restrictive training repayment agreements, that often impose steep training repayment costs if an employee leaves an employer who has provided training.  These are often called "stay or pay" agreements.  The rule exempts a limited number of high level or highly compensated employees (earning over $151,164 annually).  The FTC also did not prohibit non-disclosure or non-solicitation agreements (unless they prevent a worker from subsequent employment).

   Time will tell whether the legal challenges succeed in delaying or enjoining this game-changing new rule.