Noncompete Rule Update: Key Changes for Employers

The Federal Trade Commission (FTC) has introduced a final rule that effectively bans most noncompete clauses nationwide. Here’s a breakdown of the new regulations and what they mean for employers:

Comprehensive Ban on New Noncompetes

  • Effective Date: The rule will take effect 120 days after its publication in the Federal Register, which is expected to be on September 4, 2024.
  • Scope: Employers will no longer be allowed to implement new noncompete agreements with workers, including senior executives.
  • Enforcement: Violating this rule will be considered an unfair method of competition under Section 5 of the FTC Act.

Changes for Existing Noncompetes

  • General Workers: Existing noncompetes for general workers will be unenforceable after the effective date.
  • Senior Executives: Noncompetes with senior executives can remain in force, provided they were signed before the rule’s effective date.

Impact and Rationale

  • Healthcare Costs: The FTC estimates the ban could lead to a reduction of $74-194 billion in healthcare spending over the next decade.
  • Business Formation: The rule is expected to increase new business formation by 2.7%, creating approximately 8,500 new businesses annually.
  • Innovation and Patents: An estimated 17,000-29,000 more patents may be filed each year.
  • Worker Wages: The rule could boost worker earnings by $400-$488 billion over the next decade.

Next Steps for Employers

  • Notice to Workers: Employers must inform employees if their noncompete agreements are no longer enforceable.
  • Legal Guidance: Employers should seek legal advice to ensure compliance and understand the implications of this rule on their business.

The FTC has provided model notices and FAQs on their website to help employers navigate this change. For more information, visit the FTC’s Noncompete Rule page or contact a legal professional.

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