FTC Finalizes Rule Restricting Noncompete Agreements for Senior Executives

The Federal Trade Commission (FTC) has finalized a new rule that prohibits employers from entering into or enforcing new noncompete agreements with senior executives. Under this rule, senior executives are defined as individuals earning more than $151,164 annually and holding policy-making positions. Existing noncompetes for these executives can remain in force, but the rule removes the previous requirement for employers to legally modify these agreements by formally rescinding them. Instead, employers must notify affected employees that the noncompete will not be enforced in the future. To facilitate compliance, the FTC has provided model language for this communication.

The Commission's decision to issue the final rule was narrowly approved with a 3-2 vote. Commissioners Melissa Holyoak and Andrew N. Ferguson opposed the rule, while Rebecca Kelly Slaughter and Alvaro Bedoya, along with Chair Lina M. Khan supported it. Each Commissioner will issue separate statements regarding their positions. The new rule is set to become effective 120 days after its publication in the Federal Register, providing employers with a clear timeline for implementation. This decision marks a significant regulatory shift aimed at reducing restrictive employment practices for high-earning executives in policy-making roles.

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