Federal Trade Commission Votes to Ban Non-Compete Agreements: What You Need to Know

On April 23rd, 2024, the Federal Trade Commission (FTC) voted 3-2 to ban non-compete agreements, a move that could reshape employment practices across the United States. Non-compete agreements, long a staple in high-level executive contracts, have increasingly affected workers across various industries. Here’s a breakdown of what this ruling means for both employers and employees.

The Scope of Non-Compete Agreements

Non-compete agreements typically restrict employees from joining or starting competing companies for a specified period after leaving their current job. According to the FTC, approximately 30 million workers, or one in five employees, are currently bound by such agreements. Traditionally associated with high-paid executives, non-compete clauses have increasingly impacted lower-wage workers, limiting their ability to seek better-paying opportunities.

Implications for Employers

With the ban on non-compete agreements, employers will need to reassess their hiring and retention strategies. While non-compete clauses have been a common tool for protecting intellectual property and preventing employees from sharing sensitive information with competitors, businesses may now need to explore alternative methods for safeguarding their interests without impeding employee mobility.

The Ban Does Not Apply to Non-Profit Organizations

Of note for the health care industry and other sectors, like education, where non-profit organizations are common, the FTC does not have jurisdiction over non-profit companies.  Non-profit employers are generally exempt from the ban.  However, if a non-profit entity has a for-profit subsidiary or is engaged in a joint venture with a for-profit entity, the ban could apply to the organization as a whole.

The Legal Landscape

Challenges to the ban have already been filed in the court system, which could lead to potential delays or modifications in the ban’s implementation.

Moving Forward

As the legal landscape evolves, both employers and employees should stay informed about developments regarding non-compete agreements. While the FTC’s ban signals a growing desire to protect workers’ rights and foster a more dynamic job market, its ultimate impact will depend on how businesses adapt to this new regulatory environment.

At Williams Kilpatrick, PLLC, we’re committed to keeping our clients informed about the latest developments in employment law. Message us today for guidance on navigating these changes.