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Understanding the New FTC Rule on Non-Compete Agreements

May 17, 2024

If you’ve seen recent headlines about the Federal Trade Commission’s (FTC) new rule on non-compete agreements, you might be curious about what it means for you. Our team at Sand, Sebolt & Wernow has put together a summary of this important update, based on information directly from the FTC.

Both employers AND employees should take note and be prepared to act when this new rule goes into effect.  The new rule was published in the Federal Register on May 7, 2024, and is to go into effect 120 days after that date of publication, making September 4, 2024, the effective date of the FTC’s new rule banning non-compete agreements and clauses.  Let’s take a look at what that means for employers and employees generally.  As always, if you have questions regarding your business and how this new rule may affect it, please reach out to an experienced attorney with your specific issue, as this article is not meant as a substitute for attorney advice.

First of all, what IS a “non-compete agreement”?  The FTC offers the following definition in the new rule:

  • A term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from:
    • (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or
    • (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.[1]

One of the main purposes of the FTC is to “protect the public from unfair methods of competition in the marketplace and promote fair competition.”[2]  Non-compete agreements or clauses (simply, “noncompetes”), says the Commission, do just the opposite of that by stifling competition.  Relying on Sections 5 and 6 of the Federal Trade Commission Act, the FTC has now banned noncompetes almost entirely.  The FTC states that such noncompetes are “unfair methods of competition” (“UMC”) subject to the FTC’s oversight.[3] 

The FTC touts the benefits of its new rule on its homepage, , where it states that “Americans could see an increase in wages, new business formation, reduced health care costs and more”.  This, the Commission reasons, is because the employees’ restrictions on professional movement and competition will be lifted under this new rule.  There can and will now be “bidding wars” for the top doctors, lawyers, and engineers, for instance. 

Under the old system, for example, if a thoracic surgeon worked at one hospital, his contract may have stated that if he ever left his employment with that hospital, he would be barred from working for a competitor hospital within, say, 60 miles of the original hospital.  Under the new system, that doctor may now go to work for a competitor hospital across the street. 

The example above illustrates how noncompetes are classified as a UMC that inhibits competition and stifles innovation, access to medical care, and many more aspects of competitive markets.  There are a few very narrow exceptions to the FTC’s ban, and in all situations, the contract must have been in effect with that employee prior to the effective date of the new rule.  In addition, there is an obligation on the part of the employer who has a noncompete in effect with employees, to provide notice to such employees that the non-compete clause or agreement is unenforceable after the effective date of the rule.  It is advisable to check with your attorney to make sure that your Notice to your employees is in compliance with the requirements of the new rule.

If you are concerned about the effect of the ban on noncompetes on your business, the FTC offers some limited guidance as to a few different alternatives.  The best alternative to keep your employee from leaving your business and taking with him/her your valuable trade secrets or other intellectual property, is to enter into non-disclosure agreements (“NDA’s”) with these employees.  An experienced attorney can provide guidance for your business.

Various states have defined or curtailed noncompetes in recent decades.  One example is the way the Supreme Court of Ohio has upheld noncompetes, so long as they are narrowly tailored.  Many states have similar rulings and requirements for noncompetes.  However, the FTC’s new rule supersedes these prior state rulings and restrictions on noncompetes and fully bans them altogether, regardless of prior state court or legislative holdings or actions.  Simply put, if a state law conflicts with the FTC’s rule banning on non-compete agreements, the FTC’s rule “wins” and must be followed.  If a state law is more restrictive than the FTC’s new rule, then that state law may generally still be enforced.  In either situation, all aspects of the new FTC rule take precedence and must be observed.

[1] See


[3] Congressional Research Service Bulletin, “The Federal Trade Commission’s Non-Compete Rule”, May 3, 2024.