Business Considerations for Facing FTC Non-Compete Ban

By Nicholas E. Williams

On April 24, the Federal Trade Commission voted to enact Part 910 of Title 16 of the Code of Federal Regulations, banning employment-based non-compete provisions and requiring businesses to provide notice to affected employees.[1] While challenges to the FTC’s Part 910 already are underway,[2] if upheld, the regulations will supersede state law and vitiate otherwise valid employment-based covenants not to compete. Unless enjoined, Part 910 will take effect on September 4, 2024.[3] Thus, businesses that have utilized these contractual restrictions need to reevaluate their strategy to protect their businesses’ relationships and information. Businesses should (1) know whether their agreements fall within the scope of Part 910, (2) track challenges to Part 910, and (3) develop strategic plans to address Part 910.

1. Understand the Scope of FTC’s Non-Compete Regulations.

First, businesses should understand the scope and requirements of Part 910’s regulations to evaluate how their existing and prospective employment contracts will be affected. The FTC’s ban characterizes employment-based non-competes as “unfair methods of competition,”[4] making them illegal pursuant to the Federal Trade Commission Act.[5] The regulations also require businesses to notify affected employees that their contractual non-compete clauses cannot legally be enforced.[6]

What “non-compete clauses” are prohibited by Part 910?

The FTC’s new regulations define non-competes as provisions that (1) prohibit, (2) penalize, or (3) functionally prevent a former employee from either (a) seeking or accepting work or (b) starting a business.[7] Simply put, “non-compete clauses” are provisions in employment contracts that are breached or triggered when a former employee seeks employment or starts a business. Notably, Part 910 is retroactive, invalidating already existing non-compete provisions, except in cases of “senior executives” or non-compete clauses that were breached prior to Part 910’s effective date. In other words, businesses cannot rely on existing non-compete provisions with most employees to protect the business from employees working for competitors or starting a competing business. And, if Part 910 is not struck down, most businesses will not be able to create enforceable employment-based non-compete clauses or the functional equivalent of a non-compete once the regulations are in effect.

The definition of non-compete clauses, based on the functionally prevent prong, will be difficult to foresee. There are two important contexts to consider for this distinction: FTC administrative proceedings and state and federal court litigation. According to the FTC, non-compete clauses include restrictive post-employment clauses that are “so broad or onerous” as to have the same effect as other prohibited provisions.[8] In litigation, defendants may argue that a restriction falls within the ambit of Part 910’s “functions to prevent” prohibition and therefore is unenforceable. Traditionally, many businesses included sweeping post-employment restrictions in employment contracts and relied on state “blue-pencil” laws to limit such clauses’ scope while the restrictions remained at least partially enforceable. That tack may no longer bear fruit if Part 910 takes effect and is upheld.

What restrictions are not “non-compete clauses,” as defined by Part 910?

Though quite broad, Part 910 does not reach every non-compete provision. Non-compete provisions in contracts for the sale of a business, the business’s assets, or equity in the business are excepted from Part 910[9] and remain legal to the extent permitted by applicable state law. Entities in certain industries—e.g., banks, stockyards, and charities—generally are also not subject to the new regulations.[10] And the retroactive effect of Part 910 does not cover existing non-competes applicable to “senior executives,” which are defined as those in a policy-making position with annual income of $151,164 or more.[11] (Part 910, to be clear, disallows employment-based non-competes for senior executives if those agreements are entered into after the new regulations’ effective date.) Also unaffected are causes of actions that have accrued prior to the effective date of Part 910. That means that existing non-competes breached prior to the effective date will not be affected by the new regulations. Part 910 also does not apply generally to other types of post-employment restrictions, such as non-disclosures and non-solicitations, unless they are functional equivalents of non-competes as mentioned above. Businesses accordingly can and should consider tailoring post-employment restrictions narrowly and specifically to address risks and concerns, rather than relying on blanket restrictions to inhibit former employees’ behavior.

2. Monitor Status of Challenges of FTC’s Non-Compete Ban.

Challenges to the FTC’s ban have already been filed based on several grounds, for example the major questions doctrine, upon which courts may strike down the FTC’s ban of employment-based non-compete agreements.[12] Of course, if courts strike down Part 910, businesses will not need to worry about its strictures. Courts are unlikely to reach a final decision anytime soon; a final ruling and appeals probably will take at least years. In the meantime, the new regulations may become effective, so businesses will need to be prepared to abide by the new regulations. Part 910, however, may be preliminarily enjoined from taking effect while courts decide the legal challenges. If Part 910 is preliminarily enjoined, the non-compete ban and its related notice requirement would not take effect until the trial court decides the case and likely until after appeals are heard. Businesses thus would not have to worry about adjusting to the new post-employment restriction regime or providing notice. So, businesses should monitor the legal challenges’ progress, especially keeping an eye on whether a relevant jurisdiction issues a preliminary injunction delaying the effective date of Part 910. In the meantime, businesses should evaluate their strategy and tactics in employment agreements.

3. Craft Strategy for Potentiality that Ban Is Not Enjoined.

Part 910 would invalidate almost all existing employment-based non-compete clauses and require businesses to notify affected employees of that development. And businesses should strategically address both of those issues–how to protect valuable information and relationships and how to notify affected current and former workers.

How to address the notice requirement?

Part 910 requires businesses to notify, in writing, any worker subject to an invalidated non-compete clause, notifying the worker who entered the agreement with them and that the non-compete clause will not and cannot be legally enforced. (If the business does not have any contact information for a former worker, the notice requirement does not apply.[13]) While Part 910 requires the issuance of a notice and provides model language, the business can decide how the notices are delivered to current workers. For example, a business could hand deliver notices at a meeting in which the business presents a message putting the FTC’s ban on non-competes in context and reminding employees of valid restrictions like non-disclosure agreements. The business could also present current workers with agreements containing other post-employment restrictions, see below, in accordance with applicable state law. The bottom line: businesses should craft their own messages to accompany the notice required by Part 910.

What are strategic alternatives to non-compete clauses?

As described above, the FTC’s ban on non-compete clauses does not blanketly extend to all post-employment restrictions. Employment provisions such as non-disclosures, non-solicitations, and others will remain enforceable (unless such provisions are functionally equivalent to non-compete clauses). Such provisions are governed by state law, which varies widely from state to state. Generally speaking, these restrictions must be supported by a “legitimate business interest.” Legitimate business interests are valuable business features–usually the business’s information or relationships–to be protected by the relevant clause. Especially to avoid the scope of Part 910 as functionally equivalent to non-competes, these restrictive provisions should be tailored to the specific business interest, the employment relationship at issue, and the applicable state law. While Part 910 may prevent businesses from utilizing non-compete clauses, it should not prevent businesses from protecting valuable information and relationships through other contractual means.

The adage, “fortune favors the prepared,” fits well in this situation. If Part 910 goes into effect, businesses will need to adjust their strategy to comply while legally protecting themselves. Businesses need to avoid being caught off guard by the FTC’s ban on non-competes or merely reacting without strategic forethought. By working with counsel, business owners should be able to adequately address the business challenges that the FTC’s new regulations may pose.

Summary Table – Clauses and Part 910

Employment-Based Non-competes (post-effective date) Prohibitions or penalties for seeking employment or engaging in business in certain industries based in employment contracts Deemed unfair trade practice
Non-Senior Executive Existing Non-Competes Non-competes applicable to any worker, other than a senior executive, entered

into prior to the ban’s effective date

Deemed unfair trade practice
Provisions that Penalize Accepting Employment or Starting a Business Require payment or repayment of money, or trigger some other penalty, upon seeking employment or starting a business, e.g., repay educational costs or bonus Deemed unfair trade practice
Sale of Business Non-Competes Prohibitions or penalties for seeking employment or engaging in business in certain industries based on sale of business, equity in business, or assets of business Not affected
Senior Executive Existing Non-competes Non-competes applicable to senior executives and entered in to prior to the ban’s effective date Not affected
Non-Disclosure Agreements Prohibit or limit the disclosure of confidential information gained during employment Not affected unless functional equivalent of noncompete
Non-Solicitation Provisions Prohibit former employees from soliciting employees or clients of the former employer for employment or work Not affected unless functional equivalent of noncompete

Disclaimer: The foregoing is not, and is not intended to, constitute legal advice; this article is for general informational purposes only. Readers should contact an attorney to obtain advice with respect to any particular legal matter or scenario. No reader should act or refrain from acting on the basis of information herein without first seeking legal advice from counsel in the relevant jurisdiction. Use of, or access to, this article does not create an attorney-client relationship between the reader and its author or their employers.

[1] Federal Trade Commission, FTC Announces Rule Banning Noncompetes (April 23, 2024).

[2] See Daniel Wiessner, US Judge Pauses Chamber’s Legal Challenge to FTC Noncompete Ban, Reuters (May 3, 2024, 5:05 PM),  (identifying multiple challenges that have been filed).

[3] Non-Compete Clause Rule, 89 Fed. Reg. 38,342, 38,505 (May 7, 2024) (to be codified at 16 C.F.R. § 910.6).

[4] See Non-Compete Clause Rule, 89 Fed. Reg. at 38,502 (to be codified at 16 C.F.R. § 910.2(a)).

[5] See 15 U.S.C. § 45(a)(1) (2024).

[6] See Non-Compete Clause Rule, 89 Fed. Reg. at 38,503–04 (to be codified at 16 C.F.R. § 910.2(b)).

[7] See Non-Compete Clause Rule, 89 Fed. Reg. at 38,502 (to be codified at 16 C.F.R. § 910.1).

[8] See Non-Compete Clause Rule, 89 Fed. Reg. at 38,364.

[9] See Non-Compete Clause Rule, 89 Fed. Reg. at 38,504 (to be codified at 16 C.F.R. § 910.3).

[10] See 15 U.S.C. § 46(a) (2024).

[11] See Non-Compete Clause Rule, 89 Fed. Reg. at 38,502 (to be codified at 16 C.F.R. § 910.1).

[12] See Daniel A. Crane, Predicting the Fate of the FTC’s Non-Compete Ban, Yale J. on Reg.: Notice & Comment (April 26, 2024).

[13] See Non-Compete Clause Rule, 89 Fed. Reg. at 38,503 (to be codified at 16 C.F.R. § 910.2(b)(3)).

At the time of this publication, Nicholas E. Williams is an attorney, licensed in North Carolina and Florida, living in Charlotte.