FTC Final Rule Banning Noncompete Agreements Approved

Written by Rebecca Tipton, SHRM-SCP

BMSS HR Advisory
Putting the “Resource” in Human Resource Consulting 

The FTC initially announced its proposal to issue a final rule banning noncompete agreements over a year ago and, in fact, BMSS hosted a webinar on this issue in April of 2023, which you can access here. The decision potentially affects many businesses and employees as it would effectively rule noncompete agreements, which are designed to protect trade secrets by discouraging employees from working for competing companies, as an unfair competition practice due to limiting an employee’s opportunities should they decide to separate from the company with which they are under agreement. We have been waiting to hear the final outcome and, on April 23, 2024, the FTC formally announced the final rule has been approved.

The final rule takes effect 120 days after it is published in the Federal Register, and bans all future noncompete agreements from that point. However, it also invalidates all pre-existing agreements for employees, except for pre-existing agreements in place for senior-level executives. Additionally, employers will be obligated to send affected employees a notice that existing noncompete agreements are no longer valid.

While we expect lawsuits will be filed to challenge the rule, there are steps you can take to prepare in case the rule stands and goes into effect later this year. Now is a good time to review any employee agreements and identify existing active noncompete agreements (or clauses included in other agreements) to identify the necessary recipients and develop a communication plan. Additionally, employers concerned about the disclosure of trade secrets should consider adopting a non-disclosure agreement instead. Employers concerned about losing employees with valued skills and talent to their competitors may want to consider investing more resources into employee retention strategies and practices, such as building an employer brand as a top workplace by offering competitive benefits, flexible workplaces, and an inviting company culture. If you would like to read more about this new development, you can review the FTC’s press release here. If you would like assistance working through ideas to increase retention or working through your communication plan, BMSS HR Advisory Services is always here to help. Feel free to reach out to us at rtipton@bmss.com or you can contact our office at (833) CPA-BMSS.