On April 23, 2023, the Federal Trade Commission (FTC) issued a final rule imposing broad restrictions on noncompetition agreements. The final rule requires employers to rescind existing noncompete agreements, and preempts conflicting state laws. The final rule is effective on Sept. 4, 2024. In the meantime, there were three cases filed (one of which has been dismissed) that may result in a stay of implementation of the rule. This creates uncertainty for employers and employees in preparing for the effective date of the final rule. The final rule dramatically impacts both employers and employees. Employees subject to these agreements, and contemplating a move, may be waiting for Sept. 4 to make decisions. Employers must prepare to determine to whom they will send rescission notices, and what steps they will take to ensure protection of trade secrets and customer relationships.

The final rule defines “noncompete clauses” as follows: any agreement that prevents a worker from, or penalizes a worker for, seeking or attempting to seek employment with any employer after the termination of their current employment. The final rule mandates that it is a prohibited unfair method of competition to enter into or “attempt to enter into” a noncompete clause with an employee, or to enforce an existing noncompete agreement, or to represent an employee that they are subject to a noncompete without a good faith basis to believe they are.