Chicago Auto Trade Association - FTC Announces Final Rule Banning Noncompete Agreements

FTC Announces Final Rule Banning Noncompete Agreements

Friday, April 26, 2024 9:00 AM | Anonymous member (Administrator)

On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 (along party lines) to issue a final rule banning employers from using noncompete agreements. The final rule bans new noncompete agreements with all workers, including senior executives, after the effective date 180 days after publication date (which is expected to be soon). Existing noncompete agreements may remain in effect for senior executives but will be unenforceable for all other workers after the effective date.

The new rule will prohibit dealers from imposing new noncompete agreements with workers or to enforce or attempt to enforce such agreements after the effective date.

Violation of law: The final rule indicates it is an unfair method of competition—and a violation of Section 5 of the FTC Act—for employers to enter noncompete agreements with workers after the effective date.
Noncompete clause: The final rule defines “noncompete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person after the conclusion of the employment; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.” The final rule also notes that the “term or condition of employment” may also include a contractual term or workplace policy, whether written or oral.
Definition of “worker”: The FTC defines “worker” as anyone who works—paid or unpaid—for an employer. This includes unpaid interns and volunteers (who are rarely subject to noncompete agreements), as well as independent contractors.
Senior executives: The final rule defines the term “senior executive” as those workers who earn more than $151,164 annually and who are in a “policy-making position.” The FTC estimates that fewer than 1% of workers are senior executives under the final rule. Existing noncompete agreements may remain in force for senior executives who meet the FTC’s requirements. Existing noncompete agreements with workers other than senior executives are not enforceable after the effective date.

The U.S. Chamber of Commerce immediately sued the FTC on the grounds that it exceeded its authority—the same basis that the two dissenting commissioners voted against the rule. The Chamber described the rule as an “administrative power grab.”

Chicago Automobile Trade Association
18W200 Butterfield Rd.
Oakbrook Terrace, IL 60181
(630) 495-2282

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