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Non-Compete Update

by | May 12, 2024 | Firm News |

On April 23, 2024, the Federal Trade Commission (“Commission”) adopted a new rule, titled “Non-Compete Clause Rule.” The Rule states:

“[I]t is an unfair method of competition for a person to enter into or attempt to enter into a non-compete clause; to enforce or attempt to enforce a non-compete clause or to represent that the worker is subject to a non-compete clause.” (Non-Compete Clause Rule, NPRM, 88 FR 3482 (Jan. 19, 202), codified as 16 C.F.R. § 910, et seq.) The Non-Compete Clause Rule will take effect in approximately 120 days. However, there will bill legal challenges to the Rule, which may delay or even prevent it’s enforcement.

This represents a federal mechanism that would supersede what has traditionally been a state law issue. It would become a violation of the Federal Trade Commission Act (“FTC Act”) for an employer to enter into or remain in a non-compete provision with a worker. There are exceptions to the Rule, including: (i) existing non-competes are still enforceable for “senior executives,”  (ii) existing non-competes, for which a cause of action has accrued by the effective date of the rule, remain actionable, and (iii) non-competes are enforceable when entered into in conjunction with the sale of a business entity or the sale of all or substantially all of a business entity’s operating assets.

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