What Your Business Needs to Know About the FTC’s Ban on Non-Compete Clauses

In a major shift for employer/employee relationships in New York and across the country, the Federal Trade Commission (FTC) recently voted to ban most non-compete clauses from employment contracts. We’ve been closely following these developments since the rule was first proposed last January and want to ensure businesses are still empowered to craft strong contracts and relationships with their employees that protect the business and inspire innovation.

This vote directly impacts businesses that use non-compete clauses to protect their operations and trade secrets, increase retention, and stand above the competition.  As a business owner and entrepreneur, it’s crucial to understand what the final rule entails and how it affects your organization.

When is the Non-Compete Ban Taking Effect?

The exact timeline for the enforcement of this ban remains uncertain, primarily due to potential legal challenges that are expected to come in response to the vote. However, barring any litigious delays, the ban will take effect in September, about four months after the rule’s approval. We will continue to monitor any developments that impact our clients.

How Does This Affect Current and Future Non-Compete Agreements?

The most immediate change for business owners to prepare for is the termination of non-compete clauses in employment contracts once the rule is in effect, with a few exceptions which we will address below. The FTC believes this new rule will foster competition, raise wages, and lead to a more equitable job market, but it will create challenges for companies who negotiate these clauses into contracts. Even if you have explicitly negotiated a non-compete clause into a contract, it will no longer be enforceable unless it qualifies under the exceptions.

Additionally, including non-compete clauses in new employment contracts will be unenforceable. The ban applies to both current and future non-compete clauses for the applicable employees.

Are There Any Exemptions to the FTC’s Non-Compete Ban?

Despite the extensive reach of the ban, there are some notable exemptions that business owners should be aware of. First and foremost, non-profit organizations may continue the use of non-compete agreements as the FTC only governs for-profit enterprises in the United States.

Additionally, existing non-compete clauses that apply to senior-level executives and those associated with the bonafide sale of a business will remain enforceable. There are also certain industry-specific clauses are still permissible, including those in:

  • Banks
  • Savings and loan institutions
  • Federal credit unions
  • Airlines
  • Businesses governed by the Packers and Stockyards Act

Stand Out from the Competition with Rodriguez-McCloskey PLLC

At Rodriguez-McCloskey PLLC, we are dedicated advocates for New York City businesses, committed to providing comprehensive, results-driven counsel. We approach each business with its unique goals in mind to shape our representation in a way that helps you thrive. This stands true even with the FTC vote to ban non-compete clauses in most employment contracts.We’re here to help you craft contracts that hold up to any legal challenges and to help you ensure your business is able to stand up to the competition. Contact us for assistance with strategies to outpace your competitors or for support should employment litigation issues arise.