On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule on noncompete agreements. The final rule, which goes into effect within 120 days (August 2024), is intended to promote competition and increase wages by banning noncompete agreements nationwide.

Although the majority of states have at least partial bans on noncompete agreements and clauses, the FTC had not made any formal ruling on these agreements until now. This rule makes all existing noncompete agreements, with a few exceptions, void and unenforceable.

FTC Position on Noncompete Agreements

The FTC’s position on noncompete agreements is that they tend to suppress wages, stifle innovation, and prevent the formation of startup businesses. Noncompete agreements as currently practiced prevent employees from leaving their current job to seek new employment or start their own companies,

Although legally noncompete agreements are supposed to be time- or geographically limited, in practice they serve to keep workers in positions they would prefer to leave or require them to bear unnecessary costs such as relocation, downgrading, or legal action. The FTC estimates that approximately 30 million workers are subject to some type of noncompete clause.

Final Rule Summary

Under the new (“final”) rule, existing noncompete agreements and clauses will no longer be enforceable once the rule goes into effect. There is a carve-out for existing noncompetes for senior executives and highly-compensated individuals.

The FTC ruling states that as currently used, noncompete agreements are a method of competition, not “a condition of the marketplace,” and as such they are inherently unfair to workers with lower bargaining powers. This has been the attitude of many state governments who have refused to enforce noncompete agreements.

What the Final Rule Means to Employers

For businesses with existing noncompete agreements, the FTC’s final rule raises some important questions and concerns. The FTC’s press release addresses some of these questions, but the FTC has not issued any final guidance on this matter.

  • If you have an existing noncompete agreement or clause that was enforceable in your state, you must provide workers with notice that the noncompete agreement will not be enforced in the future. The existing noncompete does not need to be rescinded or removed. The final rule contains model language to assist you with your notice.
  • Existing agreements with senior executives are still enforceable, but businesses will not be able to execute any new noncompete agreements with executives after the effective date of the final rule.
  • Certain noncompete agreements involving the sale or transfer of businesses will remain in effect and unchanged by the FTC’s law.

Trade Secret Laws and Nondisclosure Agreements

Businesses with concerns over intellectual property theft and other loss of business product should review other alternatives to blanket protections afforded by noncompete agreements.

  • Nondisclosure agreements are not affected by the new rule. States that have not enforced noncompete agreements have allowed NDAs to take the place of noncompetes to protect businesses from misappropriation and theft.
  • Trade secret laws are effective when enforced. Concerns over intellectual property theft led to the widespread use of noncompetes, and a subsequent lack of reliance on trade secret laws. Using an NDA in connection with robust prosecution of trade secret laws can help reduce IP theft.
  • Improving employee wages and working conditions can reduce workers’ tendency to flee for greener pastures and take company secrets with them. Stories about low pay and restrictive working conditions in programming and other IP related industries suggest that these industries are prone to disclosures because of disgruntled employees.
  • Written employee agreements should include NDAs and non-solicitation clauses, and regular employee training to ensure employees are aware of the purpose and force of these clauses. Employees should understand what “trade secrets” and “confidential information” are as it applies to their particular position, and what they are expected to do if there is a breach or failure of containment.

“Inevitable Disclosure” and the Final Rule

Some companies challenging the final rule have raised the possibility of using the so-called “inevitable disclosure” doctrine to challenge the rule. This doctrine is heavily disfavored in most states and has a very high bar of proof in states which do accept it.

“Inevitable disclosure” states that courts may prevent an employee from working for a competitor in certain positions because they must “inevitably disclose” their former employer’s trade secrets to do so. This concept of a de facto noncompete agreement requires proof of “threatened misappropriation” and not merely proof that the employee knows the confidential information.

The Defend Trade Secrets Act (DTSA) does not expressly prohibit or accept the “inevitable disclosure” doctrine, and the FTC’s final rule makes no specific statement on this doctrine. It may require further litigation to see whether a presumptive noncompete agreement will withstand the FTC’s final rule.

Litigation and Additional Considerations

As soon as the new rule was announced, the U.S. Chamber of Commerce announced it would be bringing suit against the FTC for an “unlawful power grab.” It is not clear whether the FTC has the ability to pass this type of legislation through regulatory action, or if it must be legislated through Congress. A lawsuit was filed in the Northern District of Texas challenging the Constitutionality of the rule.

As of this writing (April 2024) no stay of the FTC’s rule has been issued. Unless or until an injunction is issued, companies should proceed as if the rule was in effect.

It appears that non-profit companies will not be affected by the FTC ruling. Section 5 of the FTC Act, the basis for the final rule, does not apply to non-profit companies. Industry analysts warn that the FTC may be looking for “for-profit” companies hiding under “non-profit” protections.

Existing State Laws on Noncompete Agreements

In March 2024, just before the FTC released its own final rule, Washington State’s governor signed Substitute Senate Bill 5935, which updates and clarifies Washington’s existing law limiting the use of restrictive covenants in employment agreements. The existing law went into effect in 2020.

It is important to note that the FTC rule is not retroactive. “In addition, the final rule does not apply where a cause of action related to a non-compete accrued prior to the effective date.” Any action affected by the clarifications to the 2020 law will not be changed by the FTC rule. They will need to be litigated, and SB5935 may aid in the case.

The rule preempts state laws that conflict with the final rule. The rule does not prohibit noncompete agreements or clauses, but it does make them unenforceable, essentially rendering them moot. For instance, if your noncompete agreement forbids a worker from working for a competitor within 15 miles, and a former employee goes to work for a competitor 10 miles away, under the FTC’s rule, you may not take any action against the employee under your noncompete agreement. Under Washington’s law you can, but your employee can report you to the FTC for violating the rule.

Employer Next Steps

Because the rule is so new, no legal action has yet reached the courts for injunctive relief, let alone a decision. Businesses should not assume it’s “business as usual” and hope that the courts will rule against the FTC across the board. Employers should review their existing noncompete agreements and determine if all these agreements are necessary, or if some are simply there for convenience. If you can release some employees from unneeded noncompete agreements, you’ll be in a better position no matter how the FTC cases turn out.

Audit your trade secret and IP protections and ensure that everything is secure. Noncompete agreements only go so far in protecting your data. Keeping employees safely in your orbit will not help you if your system is open to hackers and data thieves.

Consider rewriting your noncompete clauses. The FTC’s rule does not address nonsolicitation and nondisclosure agreements. As noncompete agreements fall out of favor in more states, NDAs and nonsolicit agreements have filled the gaps. A well-crafted NDA is as enforceable as a noncompete, does not limit or restrict employees’ rights, and gives your trade secrets the same protection.


Finally, go to the FTC website and bookmark the “Final Rule” page. Check it regularly for updates as the effective date nears. If there are no injunctions against the rule, the FTC may publish additional guidance on compliance. If the rule is stayed, the FTC will put the information on their website.

Stay current on the information and let your legal department and your employees know what is happening. Communication is always key.

FTC Model Language for Notice of Nonenforcement of Noncompete Clause

A new rule enforced by the Federal Trade Commission makes it unlawful for us to enforce a non-compete clause. As of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE], [EMPLOYER NAME] will not enforce any non-compete clause against you. This means that as of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE]:

  • You may seek or accept a job with any company or any person—even if they compete with [EMPLOYER NAME].
  • You may run your own business—even if it competes with [EMPLOYER NAME].
  • You may compete with [EMPLOYER NAME] following your employment with [EMPLOYER NAME].

The FTC’s new rule does not affect any other terms or conditions of your employment. For more information about the rule, visit ftc.gov/noncompetes. Complete and accurate translations of the notice in certain languages other than English, including Spanish, Chinese, Arabic, Vietnamese, Tagalog, and Korean, are available at ftc.gov/noncompetes.