The U.S. Federal Trade Commission (FTC) recently announced a new regulation banning the use of most non-compete agreements (NCAs) by employers. The rule defines “non-compete clause” as a contractual term that blocks a worker from working for a competing employer, or starting a competing business, within a certain geographic area and period of time after the worker’s employment ends.

The key provisions are highlighted below.

• The FTC approved a final rule banning most new non-compete agreement (NCA) clauses in employment contracts. (The FTC estimates 18% – approximately 30 million employees – of the US workforce is covered by noncompetes.)
• Existing NCAs will be unenforceable under the rule, except in the case of senior executives earning at least $151,164 and serving in a policymaking position.
• Once the rule takes effect, no employer may enter into a new NCA with any employee, including senior executives.
• The rule includes an exception that allows NCAs between the seller and buyer of a business.
• Employers are required to provide current and former workers notice that their non-compete clauses are no longer in effect. The FTC has developed a model notice in a variety of languages for employers to use when notifying former employees about the change in the NCA status.

The rule takes effect 120 days after its publication in the Federal Register. The US Chamber of Commerce and the accounting firm Ryan LLC have already challenged the rule in separate actions in US Federal courts in Taxes.

According to the FTC rule, all state law non-compete agreements will be preempted unless they provide greater protections for employees. While each case is unique, the federal ban is likely to supersede Massachusetts NCA prohibitions, given that the commonwealth still allows the use of NCAs, with certain limitations.

AIM members interested in talking about this or any other human resources matter may contact the HR Helpline at 1-800-470-6277.