New FTC Rule on Non-Compete will be challenged

Last Tuesday, in a 3 -2 vote, the Federal Trade Commission (FTC) issued the Non-Compete Clause Rule (“the final rule”), that would effectively eliminate millions of business agreements currently in place, pending litigation fighting against the rule.

In its rule release issued April 23, the FTC stated, “The final rule provides that it is an unfair method of competition—and therefore a violation of section 5—for persons to, among other things, enter into non-compete clauses (“non-competes”) with workers on or after the final rule’s effective date.” For existing non-compete agreements the FTC created a carve out for “senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date.”

Last Wednesday, the U.S. Chamber of Commerce along with several other business organizations filed suit in Texas Federal court to block the rule from taking effect. The U.S. Chamber stated, “The sheer economic and political significance of a nationwide noncompete ban demonstrates that this is a question for Congress to decide, rather than an agency.”

Under the current rule, the ban will take effect 120 days after publication in the Federal Register, pending any action by the courts to stay the ruling while legal proceedings play out. A common business practice that is estimated to affect roughly 30 million U.S. employees who are currently subject to a noncompete clause. If the final rule does go into effect, the outcome may lead to a rush for business startups and innovation as employees will no longer be limited.