Final Non-Compete Rule will be a Compliance Nightmare for Small Business

Date: May 14, 2024

The vaguely defined rule with open-ended terms will impact Main Street firms

The Federal Trade Commission (FTC) has announced its final rule on noncompete clauses. The final rule states that using non-competes is an unfair method of competition — and therefore a violation of Section 5 of the FTC Act — for employers to enter noncompete contracts with workers after the effective date.  

“Beyond the task of upending how they approach hiring and training new employees, owners will need to tediously study existing contracts to properly alert current employees of these changes or risk being penalized,” said Beth Milito, Executive Director of NFIB’s Small Business Legal Center. “This rule is yet another example of federal agencies misrepresenting the needs of small businesses and underreporting the impact a regulation will have on Main Street firms.” 

For existing non-compete agreements, the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-compete clauses can remain in force. For workers other than senior executives, they are not enforceable after the effective date of the final rule. 

NFIB filed a comment letter in April opposing the FTC’s proposed rule. A lawsuit has been filed in the U.S. District Court for the Northern District of Texas that challenges the FTC’s final rule banning noncompete agreements.  

The NFIB Small Business Legal Center protects the rights of small business owners in the nation’s courts. NFIB is currently active in more than 40 cases in federal and state courts across the country and the U.S. Supreme Court. 

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