FTC Announces Rule Banning Most Noncompete Agreements

For decades, employees, labor groups and economists have criticized companies’ use of noncompete agreements to stop former workers from obtaining a job within the same industry. Now, the federal government has taken bold action that should prevent nearly every business from placing limits on an ex-employee’s ability to work in their chosen field. 

The Federal Trade Commission (FTC)’s final rule effectively banning most noncompete agreements nationwide represents a monumental shift in employment law and is expected to enhance worker mobility, promote fair competition and potentially boost wages across various industries. Sometimes referred to as restrictive covenants, noncompete agreements are often overbroad and susceptible to legal challenge even absent the proposed rule. Specific elements of the FTC’s action include the following:

• Ban on new noncompete agreements — Outside of restrictive covenants between companies and certain policy-making executives earning more than $151,164 annually, the new rule would prevent the creation of any new noncompete agreements. This provision would not only protect employees, but also independent contractors, interns and volunteers.
• Refusal to enforce existing agreements — Once the final rule takes effect, most existing noncompete agreements will not be enforceable, even though they might have been legal when they were signed. However, cases already filed relating to alleged breaches of these agreements would be allowed to continue. 
• Employee notice requirement — Companies will not be able to get away with deceiving workers who previously signed noncompete agreements and might mistakenly believe they are still valid. Part of the new rule requires employers to inform their workers that the terms of the agreement will no longer be enforced.  

While the FTC’s ruling is a major step toward protecting worker rights and fostering competition, it’s important to note that certain exceptions and legal challenges may arise. Employers can also use nondisclosure agreements and other less restrictive measures to safeguard their proprietary interests. Workers and businesses should consult with an attorney who has experience handling noncompete agreement issues to learn how the rule change affects their rights. 

The Reddy Law Firm, P.C. in Alpharetta provides comprehensive legal counsel to Georgia clients regarding the enforcement of noncompete agreements. Attorney K.P. Reddy stays on top of the latest employment law developments and represents parties when disputes arise over restrictive covenants. For a consultation, please call 678-629-3246 or contact us online.