BY: SAMANTHA BARTLETT, DVM

On April 23, 2024, the Federal Trade Commission (FTC) made a final ruling banning noncompete clauses across the country. The ruling was issued after the committee determined noncompetes violate parts of the FTC act which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The ruling will go into effect 120 days after it is published in the Federal Register. The ruling was decided after reviewing the more than 26,000 submissions during the 90-day comment period established by the initial FTC proposal. 

The FTC estimates that 30 million Americans are bound by noncompetes currently. In a press release, FTC Chair Lina M. Khan stated, “noncompete clauses keep wages low, suppress new ideas and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.”

The rule will prohibit for-profit employers from subjecting new workers to noncompete agreements. Existing noncompetes for most employees will be unenforceable. Examples of valid noncompetes are those with senior executives and those entered into as part of a sale of business. The FTC offered other alternatives to noncompetes that would allow business to protect their information and investments without having a noncompete. These include trade secret laws and non-disclosure agreements (NDAs).

The U.S. Chamber of Commerce and other business groups sued the FTC Texas federal court after the announcement of the new ruling. The multiple suits are an attempt to block the rule. The U.S. Chamber of Commerce stated in their lawsuit that the FTC does not have the authority to enact rules determining anticompetitive business conduct, only existing antitrust laws. The suit also states that the competitive abilities of startups will be undermined as they will not be able to keep large corporations from luring away their employees and gaining access to confidential information.