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Non-Competes Ban: FAQs & Upcoming Webinar

By Allison Sues, JD, Senior Employment Law Counsel 
Published May 21, 2024

Companies using non-compete agreements to limit a departing employee’s ability to immediately go work with a competitor are no strangers to the growing restrictions on the use of these restrictive covenants. 

For example, Illinois law currently prohibits employers from entering into non-competes with employees making less than $75,000 per year. Illinois further restricts non-competes by requiring that employees be advised to consult with an attorney before signing the agreement and that the agreement be supported by adequate consideration other than their employment at the time of signing. 

Now, the Federal Trade Commission (“FTC”) has announced its Final Rule on non-competes, which imposes a comprehensive ban on these agreements for all employers. The key takeaways of this Final Rule are as follows: 

  • The FTC has deemed non-compete agreements an unfair method of competition, and therefore a violation of Section 5 of the FTC Act. The Final Rule effectively bans almost all non-compete agreements with “workers” moving forward and invalidates most non-compete agreements currently in effect. The expansive use of the term “workers” includes both employees and independent contractors, among others.
  • The Final Rule has limited exceptions. Employers may maintain existing non-competes with “senior executives” i.e., those who make over $151,164 annually and play a key role in policy-making decisions at the organization. However, employers may not enter into new non-competes with senior executives once the rule is in effect. The Final Rule also does not bar current or future non-compete agreements entered pursuant to a sale of a business or entered into with certain non-for-profit employers, as well as employers in the banking, savings and loan, federal credit unions, and air carrier industries.
  • The Final Rule requires that employers notify all employees and former employees (other than senior executives) who are bound by a current non-compete agreement and inform them that their non-compete agreements are not legally enforceable.
  • The Final Rule’s ban extends to other restrictive covenants, such as non-disclosure agreements, training repayment agreements, and customer non-solicitation agreements, if they are so broad or burdensome to the employee that they function as a non-compete agreement in that they essentially leave the employee with no alternative but to keep working at their current employer. 
  • The Final Rule becomes effective on September 4, 2024. Legal challenges to this rule are already underway, and HR Source will track whether these challenges delay implementation of the Final Rule, limit its scope, or strike it down altogether. 

More details and analysis to come! Please join my colleagues, Kelly Hayden and Sonal Shah, for a June 11 webinar, The FTC and Non-Competes: Where Do We Go From Here?  Kelly and Sonal will analyze and discuss the new FTC regulations in-depth.