Client Alert: IMPORTANT: Noncompete Agreements Invalidated by FTC

On April 23, 2024, the Federal Trade Commission (FTC) voted to bar employers from entering into or enforcing noncompete clauses with employees or independent contractors. This is a dramatic step, but there are a few facts you should know about the new rule:

• Existing noncompetes with “senior executives” will continue to be enforceable.  A “senior executive” is defined as an employee who earns more than $151,164 per year and is in a “policy-making position.”
• New noncompetes with any employee (including senior executives) are not enforceable.
• The rule goes into effect 120 days following its publication in the Federal Register (in the next few months).
• The U.S. Chamber of Commerce, the largest pro-business lobbying group in the country, has said it will sue to block the rule.
• Once the rule goes into effect, employers must provide workers with existing noncompetes notice that they are no longer in force.
• The new rule does not apply to noncompetes entered into by a person pursuant to a bona fide sale of a business entity.

We expect litigation to hold up any enforcement of the new rule for some period of time, but it is uncertain whether this will in fact happen. We will follow-up with you as the situation develops.

If you have any questions, please contact our employment group lead Kristina Maritczak at kmaritczak@cairncross.com, or your CH& firm contact.