Insights & Resources

Here's what the new rule banning these agreements could mean for local businesses

It’s not that anyone was taken by surprise when the Federal Trade Commission on April 23 finalized a rule banning most noncompete agreements nationwide.

The idea had been bandied about for years, and the present incarnation was pretty much laid out in January 2023. The FTC claims noncompetes agreements — clauses in contracts that employees sign that prevent them from working for competitor companies during or for a set period of time after their employment or within a set geographic range — are burdensome for workers and stifle economic mobility. Some companies find them a nuisance, while others believe they’re crucial to protect inside information from competitors.

Either way, when the rule takes effect later this year, it will ban all noncompetes for all workers going forward and render unenforceable all current noncompetes except for those signed by senior executives. The rule would apply to independent contractors and anyone who works for any employer, paid or unpaid, according to the FTC.

In theory, the new rule will make it easier for businesses to hire or find top talent, but it also could open the door to potential lawsuits for companies and legal challenges to the rule itself.

And that leaves businesses in limbo — what actions should they take? What alternative strategies can they deploy? — when it’s far from clear whether the rule will go into effect as the FTC anticipates in early September or if it’s delayed or maybe derailed.

“If there are no noncompetes, a person can leave at any time after acquiring company knowledge and share that with a new employer immediately,” said Lori Carpenter, president of Carpenter Legal Search Inc., a recruitment firm that works with corporations as well as law firms. “Additionally, without noncompetes, corporations are also concerned about retention, believing that their removal will open the door for attrition.”

Read more: NO MORE NONCOMPETES? Here’s what the new rule banning these agreements could mean for local businesses