As many of you probably already know, the Federal Trade Commission (the “FTC’) issued a Final Rule outright banning employment-based noncompete agreements. The ban is expected to go into effect in August. The three key takeaways from the Final Rule are:

  1. Employers may no longer require or enforce employment-based noncompete agreements with any employees.
  2. This prohibition applies retrospectively, which means that even noncompete agreements (with the exception of those with “Senior Executives”) executed before the rule’s effective date will become invalidated by the rule.
  3. Employers will be required to provide notice to employees whose noncompete agreements are no longer enforceable.

This news has made massive head waves. Employers’ inboxes are likely inundated with literature about what this Final Rule means for them.

Who Can Avoid the Rule?

The rule has extremely broad application; however, there are a select few noncompete agreements that will survive the FTC’s prohibition and those groups need not concern themselves with reading any further:

  1. Non-Profit Organizations: The FTC only governs for-profit businesses and thus this rule will not impact nonprofit organizations.
  2. Franchisors: While the FTC rule does apply to employees that work for franchisees, the rule does not apply to noncompete agreements executed between franchisors and franchisees.
  3. Sale of a Business: The FTC rule does not apply to noncompete agreements executed in connection with the sale of a business.
  4. Senior Executives: As noted above, the Final Rule excludes noncompete agreements with “Senior Executives” from its retrospective application. This means that pre-existing noncompete agreements with Senior Executives will stay intact. According to the rule, to qualify as a “senior executive,” an employee must make at least $151,164 annually and be in a “policy-making position.” However, following the effective date, employers cannot enter into any employment-based noncompete agreements with any employees, including Senior Executives.

Not So Fast, FTC

When the FTC announced its proposed rule, it was heavily scrutinized even by dissenting FTC Commissioners. At that time, FTC Commissioner Christine S. Wilson indicated she believed the rule was susceptible to legal challenges on several bases: (1) the FTC does not have the legal authority to make and enforce this rule; (2) this rule may be of such great significance that it may only be enacted by the legislature; and (3) if Congress did delegate legislative authority to create this rule to the FTC, such a delegation of authority would be unconstitutional.

Now that the FTC has issued a Final Rule, it did not take long for these legal challenges to come. In fact, within just hours of the Final Rule being published, a Dallas-based tax services firm filed a lawsuit in the Northern District of Texas seeking to block the rule. Shortly thereafter, the US Chamber of Commerce along with other business associations filed a lawsuit in the Eastern District of Texas in another attempt to block the rule.

So, You’re Saying There’s a Chance

The FTC’s rule will become law 120 days after it is published in the Federal Register, which is expected to occur within the coming days. But given the current legal challenges it is facing, there is a chance that the rule will not get that far. The best course of action for employers right now is to stay patient and stay vigilant. If none of the legal challenges are successful in putting the enforcement of this rule on pause, employers will want to start putting together a compliance plan together as we get closer to it becoming law.

Wait – Aren’t Minnesota Employers in Compliance Already Because of State Law?

Not quite. Last summer, Minnesota joined California, Oklahoma, and North Dakota in banning post-employment based noncompete agreements. While Minnesota’s law does share some similarities with the FTC’s Final Rule (exception for noncompete agreements associated with the sale of a business; not banning the use of non-disclosure, non-recruitment, and non-solicitation agreements), there is one key distinction: Minnesota’s law did not retroactively apply to invalidate noncompete agreements entered into before July 1, 2023; thus, the FTC’s Final Rule is more expansive in its prohibition.

Because of the retroactive component, compliance with the FTC rule will require compliance efforts from Minnesota employers in addition to the efforts previously made to comply with the Minnesota law; specifically, Minnesota employers will be required to track down all their non-senior-executive workers currently subject to a noncompete agreement with the company in order to provide notice that the noncompete is no longer enforceable.

What Would an FTC Rule Compliance Plan Look Like?

While it may be best to sit still in the meantime, if/when it appears these legal challenges have failed to stall or stop the rule from going into effect, employers will want to establish a compliance plan with the following:

  • Determine Who Is Exempt: Because the rule does not apply retrospectively to noncompete agreements with “Senior Executives,” employers will likely need to consult counsel to determine which existing noncompete agreements, if any, can remain in effect.
  • Provide Notice to Impacted Workers: Employers will be required to notify workers subject to noncompete agreements rendered unenforceable that their restrictions are no longer in effect. An example of language to include in the notice is set forth below.
  • Consider Alternative Protections: Employers will need to remove noncompete provisions from their agreements going forward and should consult with counsel to determine what alternative protections they might utilize to protect the goodwill of its business. Other protections include:
    • Non-Disclosure/Confidentiality Agreements
      • These are designed to protect the confidential information of the company such as intellectual property, financial data, customer lists, or other sensitive business information from being used outside the employee’s course of employment with the company.
    • Non-Solicitation
      • These are utilized to prevent former employees from soliciting customers, suppliers, and even employees away from the company. Non-Solicitation clauses can prohibit a former employee from disrupting and interfering with the company’s customer relationships.

Model Notice Language

Incorporated into the Final Rule is the following recommended model language for informing a former employee that his or her noncompete is no longer enforceable:

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 Complete and accurate translations of the notice in certain languages other than English, including Spanish, Chinese, Arabic, Vietnamese, Tagalog, and Korean, are available at

Employers that utilize the model language will be presumed to have adequately complied with the rule’s notice requirement.