What you need to know!
In 2024, significant updates have been made to noncompete laws in the United States, driven by both federal and state-level changes.
Federal Level Changes: The Federal Trade Commission (FTC) has introduced a sweeping new rule that, effective September 4, 2024, bans noncompete agreements across most employment contexts. This rule prohibits employers from entering into or enforcing noncompete clauses with workers, including employees, independent contractors, and other service providers. Notably, the rule applies retroactively, making existing noncompete agreements unenforceable, with a requirement for employers to notify affected workers of this change.
Exceptions to this rule include noncompetes associated with the sale of a business and certain organizations outside the FTC’s jurisdiction, such as banks, credit unions, and specific tax-exempt entities. The rule also retains enforceability for senior executives under existing noncompete agreements made before the rule’s effective date.
State Level Changes: Several states have also taken independent actions to restrict noncompete agreements:
- California: Effective January 1, 2024, California’s new laws (AB 1076 and SB 699) further tighten restrictions on noncompetes. These laws prohibit employers from including noncompete clauses in employment contracts and require employers to notify employees if their noncompete agreements are void. They also assert that California’s noncompete restrictions override conflicting laws from other states.
- Minnesota: Minnesota has enacted broad limitations on noncompete agreements, reflecting a growing trend among states to protect workers’ mobility and employment opportunities.
- New York: Although New York Governor Kathy Hochul vetoed a comprehensive ban on noncompetes in December 2023, legislative efforts continue, with new proposals expected to narrow the use of noncompete clauses, particularly for low- and middle-wage earners.
- Other States: States like Maryland, Colorado, and Washington have updated their noncompete laws to raise salary thresholds and impose stricter conditions on the enforceability of these agreements.
FTC Chair Lina M. Khan states, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.” She elaborates by noting that, “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Alternatives to Noncompetes
To help protect their investments without having to use a noncompete, companies may still utilize trade secret laws and non-disclosure agreements (NDAs).
The Commission also mentions that, to retain employees, companies should consider improving wages and working conditions, rather than locking workers in with a noncompete.
These changes reflect a broader movement towards limiting restrictive employment practices and enhancing worker protections, particularly in a dynamic and increasingly remote labor market. As a result, businesses and employers are advised to review and revise their employment agreements to ensure compliance with both federal and state regulations, taking into consideration potential legal challenges and evolving legislative landscapes.
Read more directly from the FTC here.
