The Federal Trade Commission (FTC) recently issued a final rule banning nearly all non-compete agreements.

Here is what businesses and workers in Massachusetts need to know and what they can expect.

The FTC's Ban on Non-Compete Agreements

On April 23, 2024, the FTC voted 3-2 to ban nearly all non-competition agreements in the U.S. According to the FTC, the rule would impact 30 million workers. It is set to go into effect 120 days after the rule gets published in the Federal Register, which would happen in the next couple of weeks.

The rule:

1. Bans new non-compete agreements from being implemented
2. Renders nearly all existing non-compete agreements unenforceable
3. Requires employers to notify workers and tell them that their existing non-compete agreement is no longer enforceable

This applies to all “workers,” which the FTC defines broadly to include not just employees, but also independent contractors, interns, and even volunteers.

The only exception to the ban on non-competes is for “senior executives” that make at least $151,164 per year and who have “policy-making positions,” such as a company's CEO or president.

The decision to ban non-competes is bold and very worker-friendly. Companies use non-compete agreements to protect trade secrets and keep their workers from leaving to join a competitor. Workers, however, often find themselves unable to pursue better working opportunities because of a non-compete. While non-compete agreements could strike a balance between these competing interests, they are often used on entry-level workers in ways that hamper the worker's prospects without benefiting the business much at all.

What Happens Next

Nothing.

Already, business groups are suing to stop the implementation of the rule. The lawsuits were filed in Texas district courts with judges that have shown themselves to be very willing to impose injunctions that effectively freeze the enforcement of federal law nationwide while the lawsuits are winding through the judicial system. It is very likely that the enforcement of the FTC's rule will be put on hold for far longer than the 120 days it takes for it to go into effect.

The Outlook

The employment lawyers at the Katz Law Group are skeptical that this rule will survive.

The central challenge to the rule in the lawsuits that have already been filed is that the FTC lacks the authority to issue it. The FTC claims that Congress gave it the power to create rules like this one. However, the Supreme Court has recently taken a sharp turn towards limiting the rule-making powers of federal agencies like the FTC, insisting that Congress must act, not an executive agency.

Given the breadth of the FTC's rule against non-competes, it seems likely that it will end up before the Supreme Court eventually: Every attempt to enforce a non-competition agreement will raise the issue of the FTC's authority to ban them, leading to conflicting court decisions, circuit splits, and the need for the Supreme Court to weigh in.

In the end, with the Supreme Court's business-friendly trends, we will probably see this rule struck down in three years. It will get repealed in one if the executive branch changes parties.

Massachusetts Employment Attorneys at the Katz Law Group

The employment and business lawyers at the Katz Law Group represent companies and their workers in central Massachusetts, including in issues surrounding non-compete agreements. Contact them online or call their law office at (508) 480-8202.