What is prohibited under the new rule?

The rule bans using new noncompete agreements for all workers and renders most existing noncompete agreements unenforceable after the rule's effective date.

Are there any exceptions to this ban?

Yes, existing noncompete agreements for senior executives—those earning more than $151,164 annually in policy-making positions—may remain in force. However, no new noncompete agreements can be made, even for senior executives.

What are the key definitions in the rule?

A "noncompete clause" is any term that prevents or penalises a worker from seeking or accepting new employment or starting a business after their current job ends. "Senior executives" earn over $151,164 annually and hold policy-making positions.

What must employers do about existing noncompetes?

Employers must notify current and former employees, except senior executives, that their existing noncompete agreements will no longer be enforced.

Are there any exceptions to the rule for business sales?

Yes, the rule includes a sale-of-business exception for noncompetes entered as part of a bona fide sale of a business entity or ownership interest, regardless of the percentage of ownership.

How does the rule affect state laws?

The rule preempts state laws that are inconsistent with it but does not prevent states from imposing stricter noncompete restrictions.

What legal challenges are anticipated?

The U.S. Chamber of Commerce has filed a lawsuit against the FTC, claiming the agency lacks authority to issue the rule. Other companies and interest groups are expected to challenge the rule, potentially delaying or blocking its implementation.

What should employers do to prepare?

To ensure compliance, employers should review existing noncompete clauses and other restrictive covenants, such as non-disclosure and non-solicitation agreements. In light of the new rule, they should also develop strategies for onboarding, contract implementation, data protection, and managing employee exits.