FTC Issues Final Rule Banning New Worker Non-Compete Clauses and Nullifying Most Existing Worker Non-Compete Clauses

April 29, 2024

On April 23, 2024, the Federal Trade Commission (“FTC”), by a 3-2 vote, approved and issued a Final Rule, set to become effective 120 days after it is published in the Federal Register (“Effective Date”), that will ban all worker non-compete clauses except those entered into before the Effective Date with workers who qualify as “senior executives.” When effective, the Final Rule will have a significant impact on the tools available to businesses for protection of their business interests.

Key Definitions and Points under the Final Rule

Does the Final Rule Ban Non-solicitation, Non-interference, and Non-Disclosure Clauses?

The definition of “non-compete clause” in the Final Rule provides little guidance on what effect, if any, the Final Rule may have on the validity or enforcement of non-solicitation, non-interference, and non-disclosure clauses. As stated above, “non-compete clause” includes not only an employment “term or condition” that “prohibits” a worker from seeking or accepting work or operating a business after the end of their employment, but also those that “penalize” or “function to prevent” the same. The FTC states that whether any given contractual provision constitutes a “non-compete clause” is a “fact-specific inquiry.” (Also, notably, the definition of “non-compete clause” does not include restrictive covenants that apply only during a worker’s period of employment. As such, businesses should continue to use such clauses.)

If the Final Rule survives as written, we fully expect significant litigation concerning the “fact-specific inquiry” as to what provisions fall within the “non-compete clause” definition and, specifically, the precise meanings of “penalize” and “function to prevent” in this context.

It is Carruthers & Roth’s view that, notwithstanding the Final Rule, the continued enforcement of  reasonably and appropriately drafted non-solicitation, non-interference, and non-disclosure clauses is fully consistent with and critical to the concept of fair competition. Especially in states like North Carolina which recognize little to no common law or statutory duty of loyalty owed by employees to employers, the use of reasonably and appropriately drafted non-solicitation, non-interference, and non-disclosure clauses is essential to allowing businesses the means to protect their legitimate business interests.

What Should Employers Do Now?

The FTC’s Final Rule is not cause for businesses to immediately rescind or nullify any non-compete clauses or other restrictive covenants in place or to immediately alter or curtail an otherwise appropriate and reasonable business interest protection program.

First, we can expect a number of significant and intense legal challenges to the Final Rule, including whether the FTC actually has authority to implement it. For example, the U.S. Chamber of Commerce, along with other groups, already has filed suit in federal court in Texas challenging the Final Rule and asserting that the FTC does not have authority to regulate non-compete clauses. It is quite possible that court rulings in some of these suits will affect the effectiveness, scope, and/or timing of the Final Rule. As such, precisely when, how, and to what extent the Final Rule will be deemed effective is unclear at this point.

Second, and in any event, employers will have 120 days after the Final Rule’s publication in the Federal Register to adjust to and comply with it.

The above said, there are several matters and steps businesses should now consider vis-à-vis the Final Rule and protecting their business interests, including the following:

Michael J. Allen dedicates his practice to protecting clients’ rights and assets, including their contract rights and intellectual property rights, and he has decades of experience dealing with restrictive covenants. His rare blend of experience in negotiating, contracting, counseling, and litigation helps him provide meaningful insight to clients at all stages of their business relationships. Mike can be reached at 336-478-1190 or