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The Federal Trade Commission (FTC) issued a final rule in 2024 prohibiting non-competes nationwide. Later that year, a federal judge ruled that the FTC overstepped its authority. The news spread quickly, but so did misinformation. We answer the most common questions.
(Updated December 26, 2024)
On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning non-competition agreements (also known as “non-competes”) for most employees and independent contractors in the United States. The news exploded across the media and roused the interest of employers and employees alike.
Without question, a federal, near-total prohibition on non-competition agreements would be a big deal. But before you make any changes to your practice or leave your job, ensure you know the status of the rule, the timeline, the requirements, and whether you need to prepare.
Questions From Employers
Q: When will the rule go into effect?
A: The rule was originally set to take effect on September 4, 2024. However, a federal court in Texas blocked its implementation on August 20, ruling that the FTC had exceeded its authority. While the FTC appeals, the rule will not take effect as planned, and existing non-competes will remain enforceable unless prohibited by state law. Observers expect that the Trump administration will abandon the FTC’s efforts, withdrawing the appeal and allowing the Texas decision to stand.
Keep in mind that members of Congress from both parties have expressed support for banning or limiting non-compete clauses. If bipartisan sentiment gains momentum, federal legislation on the topic could be on the horizon.
Q: I employ workers in a state that already limits or bans non-competes. Does the federal court ruling blocking the FTC ban affect enforcement at the state level?
A: No, you must still follow the state laws. However, it’s always a good idea to speak to your attorney to get a comprehensive look at how the state and federal laws fit together.
For example, in Illinois, the existing ban on non-competes is limited to workers below a certain pay threshold. Remember, the federal rule covers workers at all pay levels (except senior executives with pre-existing non-competes). If the federal rule went into effect, the more restrictive guidelines would apply, and non-competes would become unenforceable for most high-income individuals.
See our related article: “The New Illinois Limits on Non-Competes: Do They Affect You?”
Texas generally allows noncompetes, but recently imposed restrictions on the duration and geographic scope of non-competition clauses for several types of clinical professionals, and added additional protections for physicians.
See our related article: “Texas Limits Noncompetes for Healthcare Workers: What You Need to Know”
In contrast, California has a near-total ban on non-competition agreements, with very narrow exceptions. Note that “senior executives,” as defined by the FTC, are not exempt under California law. Again, employers need to follow the more stringent guidelines, which, in this case, are the state’s. Thus, although the federal rule would allow it, California employers cannot enforce pre-existing non-competes for senior executives unless one of the state exceptions also applies.
Q: If a worker breaches their non-compete today, would that mean I have only until the effective date of the FTC rule— whatever that may be — to file a lawsuit?
A: Any breaches that occur before the rule goes into effect would remain enforceable (i.e., subject to a breach of contract lawsuit), even after any future effective date.
Q: My healthcare practice has only one or two workers. Would the FTC’s final rule include any exceptions for me?
A: All for-profit employers would be subject to the ban, regardless of size, industry, or the contractor/employee status of their workers.
Q: Does the FTC’s ban on non-competes pertain to workers at all levels?
A: If the ban were to take effect, new non-competes would become unenforceable for all workers, regardless of pay level or responsibilities.
However, the FTC ban includes a narrow exception for existing non-competition agreements (that is, non-completes signed before the effective date) for senior executives. These individuals, defined as employees who earn above $151,164 per year in policy-making positions, would remain bound to their old non-competes even after the effective date. This exception pertains to under 1% of workers, though.
Q: If the federal ban is restored on appeal, should I re-write my existing contracts with my staff to remove the non-competition clauses?
A: The FTC’s final rule does not require employers to strike the clauses from existing contracts. However, it does require employers to notify affected workers that the clauses are no longer enforceable. The FTC offered model language for this communication but allows employers to develop their own language and provide written notification by email, text, by hand, or via mail.
Q: As an employer, what should I be doing now?
A: You can certainly wait to see how things pan out, given the increasingly slim odds that a federal ban will ever take effect. But if you want to be more proactive, start by identifying which of your current employees and independent contractors are subject to non-competition agreements. That way, you’ll understand how any future bans passed by Congress or your state legislature might affect your practice.
Additionally, it might be helpful to share the facts with these workers if social media misinformation has led them to believe that their non-competes are invalid. While the FTC’s final rule generated significant headlines, the court cases and the current administration’s stance on non-competes received far less attention.
Work with your attorney to develop employment and independent contractor contracts for future workers. Your attorney can incorporate other protections, such as non-disclosure agreements and non-solicitation clauses (carefully crafted to avoid violating state laws or acting as a non-competition clause).
See our related video, “Should My Practice Use Non-Competes?”
Questions From Employees and Independent Contractors
Q: If I violate my existing non-compete now, am I safe from a lawsuit?
A: Violating a non-competition agreement before any potential new rule’s effective date would still considered a breach of contract, and the employer could still hit you with a lawsuit — even after the rule went into effect. A potential ban may soften employers’ will to litigate, but it’s still risky.
See our related video, “Employment Breaches of Contract.”
Q: If a federal ban ever goes into effect, should I ask my employer for a revised contract without a non-compete clause?
A: Under the FTC’s 2024 final rule, there would be no need to remove the non-competition language from your existing contract. It would simply become unenforceable unless you are a senior executive, defined as a worker earning above $151,164 per year in a policy-making position.
To date, this only holds for the FTC’s 2024 ban. Should Congress develop new legislation, for example, or should new FTC leadership under the Trump administration amend the final rule, the requirements could change.
Q: What about my contract’s non-solicitation clauses and other language restricting what I can do or say after I leave?
A: The FTC’s rule on non-competes does not directly address the enforceability of non-solicitation clauses, non-disclosure agreements (NDAs), or other “restrictive covenants,” as they are called. However, the language of restrictive covenants would need to be carefully written so as not to function as a non-compete. Plus, as we discussed earlier, your state laws may already limit the use of non-solicitation clauses and NDAs.
If you are working under an employment or independent contractor agreement and it includes additional restrictive covenants, it’s a good idea to speak with a lawyer before you accept a new position.
Q: An employer just offered me a job in a state that still allows non-competition clauses, and there’s one in the contract. Can I just go ahead and sign it, knowing that it might be meaningless someday?
A: Never sign a contract with terms that you hope the other party can’t or won’t enforce! In the specific case of non-competes, the future is uncertain. It’s possible that your non-compete will remain enforceable for the near future and beyond.
Q: The FTC’s new rule covers all for-profit businesses. What if I’m employed by a nonprofit?
A: Nonprofit organizations would not be subject to the FTC’s rule. However, the FTC intended to enforce the ban when nonprofits “act like for-profits.” As a result, nonprofit hospital legal departments were in the process of assessing their situations when the ban was paused.
Depending on the future of the ban and the results of the assessments, some non-profit employers might decide it’s safer to release employees from their non-competes. Meanwhile, some prospective employers might be more flexible when negotiating the inclusion of non-competition clauses.
Get Legal Support
Your attorney can help you keep your contracts up-to-date with current law. If you operate in any of the states where we have licensed attorneys, our firm can develop up-to-date employment contracts suited to your healthcare practice or business. We also help medical professionals plan their exits and review contracts with prospective employers. Reach out for a free consultation to learn more.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
