FTC’s Non-Compete Clause Ban Takes Effect September 4, 2024

The Rule, which already faces significant court challenges, aims to invalidate most non-compete clauses in the United States, subjecting violators to fines, penalties and injunctive relief.

NADA has developed Frequently Asked Questions (FAQ) guidance for dealerships. Pertinent highlights from the Rule include:

• On May 7, 2024, the FTC published a final rule that bans new non-compete agreements with all workers, including “senior executives.” Existing non-compete agreements may remain in effect for “senior executives” but will be unenforceable for all other workers after the effective date. 
• No later than September 4, 2024, an employer must:
  • Provide clear and conspicuous notice to workers, including former and current employees, subject to an existing prohibited non-compete that the worker’s non-compete clause will not be, and cannot legally be, enforced against the worker. Model language that satisfies this notice requirement can be found here.
  • Stop enforcing existing non-compete clauses with all workers other than “senior executives.”
  • Refrain from entering into new non-compete clauses with all workers.
• Existing non-compete agreements with “senior executives” are still valid under the Rule. To qualify as a “senior executive,” a worker must (i) receive $151,164 in total annual compensation from the employer and (ii) be in a “policy-making position.” For more details, please see NADA’s FAQ.

Substantial questions remain about the viability of the Rule, including whether it will survive pending legal challenges and be in jeopardy should there be a presidential political party change. However, the rule presently remains in force for dealers and, barring a successful legal challenge that would apply to dealer noncompete agreements, requires the actions explained in the linked FAQs.  

Additional Information: 

• NADA Non-Compete Clause Rule FAQ
• FTC Small Business Guide
• FTC Non-compete Rule Compliance Webinar
• FTC Non-Compete Rule Website