In April of this year, the Federal Trade Commission issued its Final Non-Compete Clause Rule (“Final Rule”) by a vote of 3-2. This comprehensive regulatory proposal bans all post-employment noncompetes going forward and renders existing noncompetes, for the most part, ineffective. The Final Rule applies nationwide, effectively pre-empting conflicting state laws. The effective date is Sept. 4 (which is 120 days after the Final Rule was published in the Federal Register). Its enactment was presaged by the Biden administration’s issuing an executive order in 2021 directing the FTC to limit noncompetes, as well as an extensive review of the issue and comments on a prior draft.

The FTC found that noncompetes, which cover about one-fifth of the American workforce (about 30 million people) have had a harmful effect on the economy, both businesses and workers—decreasing workers’ wages and mobility, reducing innovation and new start-ups, and generally harming competition. Although states other than California and a few others (which now ban noncompetes) only permit noncompetes that are “reasonable” in scope and effect, the FTC found that even unenforceable clauses had an in terrorem effect that deterred workers from seeking better opportunities. Litigating the issue has simply been too cumbersome, uncertain and expensive. Therefore, the FTC decided on a “one-size-fits-all” rule.