Work and Employment
FTC Non Compete Ban: What Employees Need to Know
The FTC non compete ban 2024 could ban non-compete agreements nationwide. This potential major change will give workers the freedom to change jobs, start a new business, or bring a new idea to market using previous experience.
By:
Chelsea Spinos
Reviewer:
Timothy Lenahan, Esq.
7 min read • June 17, 2024
Key takeaways
A non-compete agreement is an agreement that says you won't work for their competitors or start a similar business for a certain amount of time after you leave your job.
An estimated 30 million workers—nearly one in five Americans—are currently bound by non-compete agreements.
It remains to be seen if the FTC rule will have any effect. The Courts will need to decide if the FTC has the power to pass this kind of rule.
Imagine this: You've just secured your dream job in the tech industry. But before you can dive in, your new employer hands you a document to sign—a "non-compete agreement." You pause, wondering what this means and why it matters to you.
Non-compete agreements essentially bind you to a promise not to join a competitor for a specified period after leaving your current job.
In fact, an estimated 30 million employees —nearly one in five Americans—are currently bound by non-compete agreements.
Non-compete agreements have faced growing scrutiny in recent years. They're often seen as restrictive and unfair, limiting career growth opportunities. And for many, a non-compete agreement can feel exploitative, forcing them to either remain in a job they're eager to leave or face significant consequences, such as switching to a lower-paying field, relocating, or dealing with costly legal battles.
In 2024, the Federal Trade Commission (“FTC”) got involved in the fray. They passed a rule purporting to most non-compete agreements in the United States. However, it is unclear if the FTC has the authority or power to pass such a sweeping rule. The state and federal courts will likely have to hear cases once the purported ban goes in to effect, and only once these cases have made their way through the court system will we know if this FTC rule will be enforceable or not.
The FTC’s decision aims to empower workers by giving them more freedom to pursue new job opportunities, launch businesses, and contribute fresh ideas to the workforce based on their previous experiences.
In this guide, we give an overview of non-compete agreements, explain the FTC’s proposed non compete ban, cover how it will affect employees, and when the purported non-compete agreement ban is set to go into effect.
A non compete agreement is a contract your employer might ask you to sign, saying you won't work for their competitors or start a similar business for a while after you leave.
These agreements are meant to protect your employer's trade secrets, confidential information, client relationships, and the training they've invested in you. However, a non compete agreement can also limit your career moves.
Typically, a non compete agreement includes these specifications:
Duration (e.g. 1-2 years after employment ends)
Distance (e.g, within a 50-mile radius)
Industry or type of work restricted
Non compete agreements are most common in industries where intellectual property and client relationships are critical, like technology, sales, and consulting.
Wondering why non-compete agreements exist? They've been around longer than you might think! These contracts, which limit where you can work after leaving a job, have a history stretching back centuries.
Back in the 1400s in England, apprentices learning skills such as blacksmithing or weaving, would set up shop next to their former bosses. This created competition between the apprentice and the boss who taught him, which led to the creation of non compete agreements.
Since America generally follows English Common Law, these contracts made their way in to American law. As the Industrial Revolution took off in the 1800’s, companies invested heavily in new machines and methods. They worried employees might take these secrets to competitors. Non-compete agreements became a way to keep innovation in-house, and away from competition.
By the 1900s, with more people in white-collar jobs, employers focused on protecting client relationships. Imagine you're a top salesperson with a great rapport with clients. Your company fears if you join a rival, those clients might follow. A non compete agreement aimed to prevent this.
In the last couple decades, non compete agreements became widespread, especially in tech, healthcare, and finance industries. Many companies say these agreements encourage innovation by safeguarding confidential information and trade secrets.
However, others believe that non compete agreements limit career growth and prevent increased wages, since they limit job changes and the ability for employees to work multiple jobs.
Right now, it does not affect anyone. The FTC has a limited mandate by Congress to enforce rules around unfair trade practices. This purported non-compete ban is seen by many as a rule that the FTC is not allowed by law to make. Whether that is the case or not, that is a decision the Courts will have to make. Further, there could be procedural issues with how the rule was debated and issued. Again, we will look to the courts to see what they decide on that issue.
If the Courts do allow the FTC to make this change, that could include:
Existing non compete agreements vanishing: Your current non-compete becomes unenforceable, and your employer must notify you that it’s no longer binding
More job freedom: Move to a competitor without fear, without a waiting period of 1-2 years after leaving your last role
Higher pay potential: Openly interview with competitors, and use any offers to negotiate a raise at your current job
Launch a business: Use your knowledge and experience to start a business of your own, even if it directly compete with your past employer
Change industries: Make career moves even in “related fields”
Overall, the FTC non compete ban could empower you to switch jobs, negotiate better pay, start a business, or pivot industries with confidence.
Nothing has changed yet. You should keep an eye out for any developments in the law, and especially keep an eye on any decisions issued by federal Circuit Courts, or the Supreme Court.
At Manifest Law, we are monitoring any cases at the state and federal level that could give us guidance as to whether or not this rule will be enforceable.
It does not affect anyone yet. But if the rule does go into effect, it will likely have some of the following changes:
First off, your employer wouldn't be able to use non-compete agreements to keep you anymore. Now, they'll need to find other ways to make you want to stay—think better pay and improved working conditions.
If you already have a non-compete agreement, your employer may be required to give you notice that the agreement will no longer be enforceable. However, if you’re in a senior executive role, your non-compete agreement may still be valid.
In effort to protect company information, employers will likely have you sign more detailed non-disclosure agreements (NDAs). Signing an NDA agreement is already quite common, as researchers estimate that over 95% of workers with a non-compete agreement already have signed an NDA.
If the FTC non compete ban goes into effect, you may also expect your employer to invest more heavily in your career growth and development. Employers often hesitate to train employees extensively, fearing that he or she would take new skills to a competitor. Now, they may invest in employees professional development as a way to retain you.
In short, with the FTC non compete ban, your employer will need to put in more effort to keep you at the company.
While the details of the FTC non compete ban are still being finalized, it's anticipated that there may be certain exceptions built into the rule.
Two common exceptions that are often mentioned include:
Sale of a Business: In many cases, non-compete agreements are included as part of the sale of a business. When a business is sold, the buyer may want assurances that the seller won't immediately start a competing business using the knowledge gained from the sale. Non-compete agreements in these cases may still be considered valid to protect the business's value.
Protecting Trade Secrets: If employees have access to sensitive company information like client lists or special techniques, non-compete agreements can prevent them from using that information to compete against their former employer. This helps to safeguard important business secrets.
These exceptions aim to balance protecting workers' rights to find new jobs with safeguarding important business interests. If you might be in either of these situations, it’s advised to consult an employment lawyer to understand how the FTC non compete ban may affect you.
Reach out to get an evaluation the strength of your case.
The FTC's non-compete ban timeline has been evolving. Here are the latest updates as of June 4th, 2024.
May 7, 2024: The final rule was published in the Federal Register.
April 23, 2024: The Federal Trade Commission issued a final rule to ban non-compete agreements nationwide.
January 25, 2024: The FTC announced the final rule. After reviewing all comments, they decided to move forward with the ban, with some adjustments based on feedback.
April 19, 2023: Public comment period closed. For over three months, the FTC gathered feedback from workers, businesses, and the public. They received over 26,000 comments.
January 5, 2023: The FTC proposed the rule to ban non-compete agreements nationwide. This was the first official step, signaling their intent to make a significant change.
The rule takes effect 120 days after Federal Register publication. The official start date of the FTC non compete ban is September 4, 2024. It is very likely that the first cases challenging the new rule will be filed within a few days of the rule going into effect.
💡 Manifest Tip: Keep records of the notice from your employer stating that your non-compete agreement is no longer.
It’s important to keep in mind that potential lawsuits could significantly affect the FTC non compete ban timeline.
The FTC is making a new rule that is arguably outside the scope of their authority. There will very likely be lawsuits filed by employers, groups representing employers, and potentially even by states upset that the FTC is attempting to encroach on what is traditionally a state function – setting up the laws around contracts. Even if the courts find that FTC has the authority to pass such a rule, the courts may find that the FTC did not follow the proper procedural steps in writing their rule, which could also potentially be another avenue in which the rule is overturned.
To stay updated on the FTC's actions regarding non-compete agreements, you can visit the official website of the Federal Trade Commission (FTC) at www.ftc.gov. The FTC regularly publishes news releases, reports, and updates on proposed rules and regulations, including those related to non-compete agreements.
Are there any existing bans on non-compete agreements?
Before the FTC's nationwide ban, several states already had strong restrictions or outright bans on non-compete agreements. These state level laws significantly influenced where workers had more career freedom.
Some states set income thresholds to determine if a non compete agreement can be enforced. The logic is that higher-paid employees are more likely to have access to sensitive information warranting protection, while lower-wage workers shouldn't face such career barriers.
Most states have some limits on geographic distance, time duration, and scope of noncompete agreements. For example, it is not uncommon for a state to limit the scope of a noncompete to a small geographical area, over a short time period, and only for directly competing with a person’s prior employer.
How does a company know if you violate a non compete agreement?
If you sign a non-compete agreement with a company, they can find out if you break it through a number of different ways.
Industry news: Your previous company might notice if you start working with a competitor or start a similar business.
Word of mouth: Sometimes, people in your industry—former colleagues, clients, or competitors—might mention your new job to your previous employer.
Checking your LinkedIn: Companies may check your LinkedIn profile, social media, or business websites to see if you’re working in a competing role.
Customer feedback: Customers or clients might mention that they are working with you in a new, competing business.
If the company has reason to believe that you have broken a non-compete agreement, they might send you a formal warning or a cease-and-desist letter. In other cases, they might take legal action to enforce the non compete agreement, which could impact your ability to work in your new role.
If your former employer alleges that you've violated the terms of a non-compete agreement, it's essential to seek legal representation immediately. Our team of employment lawyers at Manifest Law can assess the validity of the allegations, help defend your rights, and navigate any legal proceedings.
Can I work for a competitor if I signed a non compete?
If you signed a non compete agreement, your ability to work for a competitor depends on a few factors.
First, you should check the agreement details outlined in the non compete agreement you signed. It will specify how long you must wait before working for a competitor, where you can’t work, and what types of jobs you can’t take.
Whether you can work for a competitor or not also depends on the jurisdiction. For example, in some states like California, these agreements are usually not enforced, while in others, they might be.
Sometimes, you can negotiate with your former employer to modify the terms of the agreement, or give you permission to work for a competitor under certain conditions.
If you’re concerned about your non-compete agreement, an employment lawyer from Manifest Law can help you better understand your rights. Book a free consultation today and learn about your options.
Can I negotiate the terms of a non-compete agreement?
Yes, you can negotiate the terms of a non-compete agreement before signing it. Non-compete agreements are contracts, and like any contract, the terms can be discussed and modified before you agree to them.
Here are some details you can negotiate in the non compete agreement:
Scope of work: Clarify and limit the types of roles and responsibilities you are restricted from taking on. Be specific.
Geographic limitations: Narrow the geographic area where the non-compete applies to make it more reasonable and specific to your role.
Duration: Negotiate a shorter duration for the non-compete, especially so it doesn’t limit your career opportunities.
Compensation: If the non-compete significantly limits your job prospects, consider asking for compensation or additional benefits in return for agreeing to it.
When it comes to negotiating a non-compete agreement, it can be helpful to seek guidance from an employment lawyer. They can offer valuable advice on whether the agreement is fair, suggest changes to safeguard your interests, and handle negotiations for you.
At Manifest Law, our team of skilled employment lawyers specializes in non-compete agreements, ensuring your rights and career opportunities are well protected. Book a free consultation today.
How long do non-compete agreements typically last?
Non-compete agreements typically last from six months to two years, but the specific duration can vary based on the agreement and jurisdiction.
What happens if I violate a non-compete agreement?
If you violate a non-compete agreement, your former employer may take legal action against you, seeking injunctions to prevent you from continuing the competing activity and potentially suing for damages.
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