Addressing the New FTC Ban on Non-Compete Agreements

On April 23, 2024, the Federal Trade Commission voted 3-2 in favor of adopting a new Non-Compete Clause Rule (the “Rule”). The new Rule forbids employers from requiring employees to sign non-compete clauses. The FTC’s comprehensive ban on non-competes has widespread implications for employers and employees nationwide (with an estimated impact on approximately 3.3 million workers in New Jersey and 7.4 million workers in New York alone). Subject to limited exceptions, the Rule provides that non-complete clauses are a per se unfair method of competition. Specifically, an employer will now be in violation of section 5 of the Federal Trade Commission Act if the company attempts to require employees to enter into non-compete clauses on or after the Rule’s effective date. The effective date, which has yet to occur, is 120 days after the final rule is published in the Federal Register.

The final rule has two separate provisions defining unfair methods of competition. One provision applies to senior executives and the second applies to all other workers. A senior executive is defined as an employee earning more than $151,164 annually and who is in a “policy-making position.” For employees, excluding senior executives, it is an unfair method of competition for an employer to (1) require or attempt to require that an employee enter into a non-complete clause, (2) enforce or attempt to enforce a non-compete clause, or (3) represent that the employee is subject to a non-compete clause.

For senior executives, it is an unfair method of competition for an employer to (1) require or attempt to require that a senior executive enter into a non-complete clause, (2) enforce or attempt to enforce a non-compete clause entered into after the effective date, or (3) represent that the senior executive is subject to a non-compete clause, where the non-compete clause was entered into after the effective date. Therefore, the final rule’s retroactive effect does not apply to senior executives and existing non-competes with senior executives will remain in full force. The FTC estimates that fewer than 1% of employees will be considered senior executives under the Rule.

Notably, the Rule protects a broad class of workers, paid and unpaid, without regard to the person’s title, including, but not limited to, independent contractor, extern, intern, volunteer, apprentice, or sole proprietors. Moreover, employers specifically should be aware that the Rule contains a notice requirement. Employers must provide clear and conspicuous notice by the effective date to employees, except senior executives, subject to existing non-competes that its non-compete is no longer enforceable. The Rule includes model language that employers can use to satisfy the notice requirement.

While the Rule is broad in scope, it contains the following key exceptions that employers and employees should know:

  • The final rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business
  • The final rule does not apply where a cause of action related to a non-compete accrued prior to the effective date.
  • It is not an unfair method of competition to enforce or attempt to enforce a non-compete or to make representations about a non-compete where a person has a good-faith basis to believe that the final rule is inapplicable.
  • The final rule does not limit or impact enforcement of state laws that restrict non-competes where the State laws do not conflict with the final rule.

Employers should be proactive in familiarizing themselves with the Rule and should begin taking steps towards compliance. Should you have any questions or concerns regarding how this rule change may impact your business, contact us to discuss your concerns.


Ross A. Fox, a partner at A.Y. Strauss, serves as outside general counsel for owners of various closely-held businesses in the food services, construction, real estate, and franchise spaces. Ross’s practice includes strategic advising along with enforcing or defending contract claims, employment related disputes, and business torts. Ross can be reached at rfox@aystrauss.com.

Maria A.G. Harper, an associate at A.Y. Strauss, represents clients across various business sectors including matters involving breach of contract, franchise disputes, business torts, and employment disputes. Maria can be reached at mharper@aystrauss.com.