Non-Compete Clause Rule
Pursuant to the Federal Trade Commission Act ("FTC Act"), the Federal Trade Commission ("Commission") is issuing the Non- Compete Clause Rule ("the final rule"). The final rule provides that it is an unfair method of competition for persons to, among other things, enter into non-compete clauses ("non-competes") with workers on or after the final rule's effective date. With respect to existing non-competes--i.e., non-competes entered into before the effective date--the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date.
What this rule actually says
The FTC just banned non-compete agreements for most workers. Starting in late 2024, companies can't make employees or contractors sign agreements that prevent them from working for competitors or starting competing businesses. Existing non-competes with regular employees become unenforceable, though non-competes with senior executives (C-suite and top earners) can stay in place.
Who it applies to
- If you have employees or contractors anywhere in the US — this applies. The FTC has jurisdiction over "unfair methods of competition" nationwide.
- If you've signed non-competes with anyone except senior executives — those agreements are now unenforceable as of the effective date (late 2024).
- If you're planning to hire people — you cannot ask new hires to sign non-competes unless they're senior executives (generally officers, board members, or employees earning >$150K who set strategy).
- If you work in any AI vertical — hiring assistants, medical scribes, support chatbots, etc. — this doesn't matter. The rule applies to all industries equally.
- If you only use contractors or are solo — this still applies if you ever formalize a contractor agreement with non-compete language.
This rule does not affect non-disclosure agreements, non-solicitation agreements (preventing poaching of customers/employees), or garden-leave clauses.
What founders need to do
- Audit existing agreements (2-3 hours). If you've signed non-competes with employees or contractors who aren't senior executives, flag them. They're no longer enforceable as of late 2024—but document this for your records.
- Revise your hiring templates (1-2 days). Remove non-compete language from offer letters, employment agreements, and contractor agreements. Keep non-solicitation and NDA language if you use it.
- Notify current employees (1-2 hours). Send a brief message confirming that any non-compete in their agreement is now void. This builds goodwill.
- Consult a lawyer if you have senior executives (a few hours). If you have C-level employees, confirm with counsel whether non-competes are still enforceable for them and whether you want to keep them.
- Monitor the effective date (ongoing). The rule's effective date is still being finalized. Set a calendar reminder to revisit this in Q4 2024.
Bottom line
Act now if you have employees; remove non-compete language from new and existing agreements for everyone except senior executives.