PolicyFTC non-compete rule
The FTC’s 23 April 2024 non-compete ban demands that employers rescind most existing non-competes, cease using new ones, and replace them with lawful trade secret, retention, and communications controls before the expected effective date in late August 2024.
Verified for technical accuracy — Kodi C.
The Federal Trade Commission voted on 23 April 2024 to finalize a sweeping rule banning most employer non-compete clauses nationwide (16 CFR Part 910). Unless enjoined by ongoing litigation, the rule will take effect 120 days after publication in the Federal Register, expected in late August 2024. Employers will be prohibited from entering into new non-competes with any worker and must rescind existing non-competes for everyone except qualifying senior executives. Legal, HR, and compliance leaders now face a compressed window to inventory restrictive covenant portfolios, deliver rescission notices, and fortify alternative protections for trade secrets, customer relationships, and workforce investments.
Scope of the rule
The FTC defines a non-compete clause as any term or condition of employment that prohibits, penalizes, or functions to prevent a worker from seeking or accepting work in the United States after employment ends, or operating a business. “Worker” covers employees, independent contractors, externs, interns, volunteers, apprentices, and sole proprietors providing services. The rule applies broadly across sectors, including non-profits that fall within the FTC’s jurisdiction. It preempts state laws to the extent they are less protective, but preserves state regimes that offer greater worker protections.
Senior executive carve-out
Existing non-compete agreements with “senior executives” may remain in effect, but employers cannot enter into new ones after the effective date. Senior executives are workers in policy-making positions who earned at least $151,164 in the preceding year (adjusted annually). Policy-making positions include presidents, CEOs, officers with ultimate authority to make policy decisions, or other roles with comparable authority. Companies must carefully document compensation and governance structures to determine who qualifies. For everyone else, existing non-competes become unenforceable on the effective date.
Rescission and notice requirements
Employers must provide “clear and conspicuous” written notices to current and former workers subject to non-competes—other than senior executives—informing them that the employer will not enforce the clause. The FTC provides model language that can be delivered by hand, mail, email, or text message.
Notices must be issued by the effective date. Organizations must maintain records demonstrating compliance, including proof of delivery. Because many non-competes are embedded in offer letters or standalone agreements stored in disparate systems, companies should launch discovery projects to locate and catalog all restrictive covenants, including templates used by subsidiaries and legacy acquisitions.
Functional equivalents and de facto non-competes
The rule prohibits not only explicit non-compete clauses but also functional equivalents, such as overly broad non-disclosure agreements (NDAs), training repayment agreement provisions (TRAPs), or non-solicitation clauses that effectively prevent a worker from switching jobs. Compliance teams must review related covenants to ensure they are narrowly tailored.
For example, NDAs should restrict disclosure of defined categories of confidential information rather than forbidding employment with competitors. Training repayment agreements must reflect bona fide expenses reasonably related to the actual cost of training. Garden-leave arrangements remain permissible if the worker continues to receive full compensation and benefits and is treated as an employee during the restricted period.
Sale-of-business exception
The rule preserves non-competes entered into under the bona fide sale of a business entity, ownership interest, or significantly all of a business’s assets. Unlike the proposed rule, the final rule removes the 25 percent ownership threshold, but the transaction must be legitimate and reflect arms-length consideration. Deal teams should ensure sale agreements clearly tie any non-compete to the transaction, specify duration and geographic scope consistent with state law reasonableness standards, and avoid applying sale-related non-competes to rank-and-file employees who are not selling an ownership interest.
Litigation and enforcement posture
Business groups have filed lawsuits challenging the rule, including suits in the Northern District of Texas (U.S. Chamber of Commerce et al. v. FTC) and Eastern District of Texas (Ryan LLC v. FTC), arguing that the FTC lacks significant rulemaking authority under the Federal Trade Commission Act. Courts could stay or vacate the rule. Nevertheless, the FTC has signaled aggressive enforcement of existing Section 5 authority to police unfair methods of competition involving non-competes. Companies should track litigation milestones, prepare contingency plans, and consider how investor, customer, and employee expectations may evolve even if portions of the rule are invalidated.
Compliance program actions
If you are affected, create cross-functional task forces spanning legal, HR, compliance, and communications. Immediate actions include: (1) conducting a full inventory of agreements to identify non-competes, non-solicits, NDAs, training repayment provisions, and related covenants; (2) categorizing affected workers, highlighting senior executives who may retain existing non-competes; (3) drafting notice templates and building delivery workflows; and (4) revising onboarding materials to remove non-compete language. HR information systems should be updated to flag workers who received notices, and case management tools should track inquiries from former employees or recruiters.
Alternative protections
With non-competes curtailed, companies must reinforce other mechanisms to safeguard sensitive assets. Trade secret programs should emphasize access controls, data loss prevention, exit interviews, and litigation readiness under the Defend Trade Secrets Act.
Customer non-solicitation clauses should be calibrated to protect legitimate business interests—such as customer goodwill or confidential information—without overbreadth. Incentive compensation plans can incorporate forfeiture-for-competition provisions when permitted by state wage laws. Employers should also evaluate retention strategies, including career development programs, equity grants, deferred compensation, and culture initiatives that encourage loyalty without relying on restrictive covenants.
Global and state-level coordination
Multinationals must harmonize U.S. changes with global employment law. Several jurisdictions—including California, Minnesota, North Dakota, Oklahoma, and the District of Columbia—already restrict or ban non-competes, while others such as Illinois and Massachusetts impose compensation thresholds and notice requirements.
Employers should ensure policy manuals and employment agreements reflect the most protective regime applicable to each worker. Cross-border assignments should clarify which legal system governs the employment relationship. Companies should also monitor proposed state laws targeting de facto non-competes, wage theft, or training repayment schemes, ensuring compliance frameworks remain agile.
Communications and employee relations
Rescinding non-competes may generate confusion among managers, employees, and investors. Communications teams should craft messaging that acknowledges the regulatory change, reiterates expectations regarding confidential information, and highlights career development opportunities. Managers require training on acceptable conversations about departing employees, permissible hiring practices, and how to handle solicitations from competitors. If you are affected, implement exit interview protocols that confirm return of property, reinforce confidentiality obligations, and capture intelligence about competitive threats.
Monitoring and future-proofing
Post-setup, companies need ongoing governance. Compliance functions should establish dashboards tracking notice completion, litigation developments, employee mobility trends, and trade secret incidents. Internal audit can evaluate program effectiveness by sampling personnel files, reviewing agreement repositories, and testing communication controls. Boards—particularly compensation and governance committees—should receive periodic updates on restrictive covenant strategy, employee retention metrics, and litigation risk. If courts invalidate the rule, companies must be prepared to adjust policies while considering reputational impacts of reintroducing non-competes.
This brief helps employers operationalize the FTC non-compete rule with agreement intelligence, notice automation, and trade secret control monitoring that preserves competitive advantage without unlawful restraints.
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Cited sources
- FTC Announces Rule Banning Noncompetes — ftc.gov
- Non-Compete Clause Rule — ftc.gov
- ISO 31000:2018 — Risk Management Guidelines — International Organization for Standardization
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