A Possible Sea Change for Non-Compete Agreements
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By David E. Robbins, Esq.[i]

In April 2024, the Federal Trade Commission (“FTC”) issued its Final Rule prohibiting existing and prospective non-compete clauses in agreements between employers and their workers.[1] Before it became effective, the new regulation was challenged in court proceedings and at the time this new article was submitted to my publisher, there had been no nationwide injunction against its implementation.[2]  It should be noted at the outset that the regulation does not affect non-solicitation and confidentiality provisions.

This article examines the breadth of the new regulation, the carve-out for so-called “senior executives,” notice requirements for effected individuals, implications for the securities industry, the FTC’s economy-driven reasons for implementing the rule and selected commentary from international law firms.

The FTC’s Rule on Non-Compete Agreements[3]

In its Summary of the regulation, the FTC wrote that, “The final rule provides that it is an unfair method of competition—and therefore a violation of section 5 [of the Federal Trade Commission Act] —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.

§ 910.2 Unfair methods of competition.

(a) Unfair methods of competition

 (1) Workers other than senior executives. With respect to a worker other than a senior executive, it is an unfair method of competition for a person:

  • To enter into or attempt to enter into a non-compete clause;
  • To enforce or attempt to enforce a non-compete clause; or
  • To represent that the worker is subject to a non-compete.

(2) Senior executives. With respect to a senior executive, it is an unfair method of competition for a person:

  • To enter into or attempt to enter into a non-compete clause;
  • To enforce or attempt to enforce a non-compete clause entered into after the effective date; or
  • To represent that the senior executive is subject to a non-compete clause, where the non-compete clause was entered into after the effective date. [italic added to distinguish this provision from workers other than senior executives]

(b) Notice requirement for existing non-compete clauses

(1) Notice required. For each existing non-compete clause that it is an unfair method of competition to enforce or attempt to enforce under paragraph (a)(1)(ii) of this section, the person who entered into the non-compete clause with the worker must provide clear and conspicuous notice to the worker by the effective date that the worker’s non-compete clause will not be, and cannot legally be, enforced against the worker.

(2) Form of The notice to the worker required by paragraph (b)(1) of this section must:

  • Identify the person who entered into the non-compete clause with the worker;
  • Be on paper delivered by hand to the worker, or by mail at the worker’s last known personal street address, or by email at an email address belonging to the worker, including the worker’s current work email address or last known personal email address, or by text message at a mobile telephone number belonging to the worker.

(3) Exception. If a person that is required to provide notice under paragraph (b)(1) of this section has no record of a street address, email address, or mobile telephone number, such person is exempt from the notice requirement in paragraph (b)(1) of this section with respect to such worker.

(4) Model language. For purposes of paragraph (b)(1) of this section, the following model language constitutes notice to the worker that the worker’s non-compete clause cannot legally be enforced and will not be enforced against the worker.

Who is a “Senior Executive”?

According to the FTC notice of the regulation:

  • The Commission defines “senior executives” based on an earnings test and a job duties test. In general, the term “senior executives” refers to workers earning more than $151,164 who are in a “policy-making position” as defined in the final rule.
  • The Commission adopted this definition after considering the many comments on who senior executives are and how to define them. Notably, the Commission concluded that, unlike highly paid senior executives, highly paid workers other than senior executives and lower-wage workers with senior executive titles as a formal matter likely experience exploitation and coercion and are unlikely to have engaged in bargaining in connection with non-competes, much like lower-wage workers.
  • In other words, the Commission finds that the only group of workers that is likely to have bargained for meaningful compensation in exchange for their non-compete is senior executives who are both highly paid and, as a functional matter, exercise the highest levels of authority in an organization.
  • The Commission estimates that approximately 75% of workers are such senior executives.
  • As noted by the international law firm of Seyfarth: “Who falls under that exception leaves room for interpretation, but it is intended to be narrow and requires the individual to have “policy-making” authority for the entire organization, and would closely align with the SEC’s definition of anexecutive officer. Again, this exception only allows for existing non-competes prior to the effective date. It does not allow for new non-competes with senior executives that are entered into after the effective date.”[4]


Implications of the Rule to the Securities Industry

  • Is a financial adviser who is hired as a Managing Director or other senior position with a brokerage firm an FTC “senior executive”? They certainly would exceed the compensation threshold. But would they be in a “policy-making position”?  That would have to be a fact-based, case-by-case decision.
  • The Final Rule provides that existing non-competes can remain in force with “senior executives,” but only until these agreements expire. Employers cannot enter into new non-compete agreements with senior executives, including extending existing agreements, after the rule goes into effect.
  • The rule requires employers to send a notice by the effective date to each worker with an existing non-compete clause voided by the rule explaining that the “worker’s non-compete will not be, and cannot legally be, enforced against the worker.” This notice must be an individualized notice to each worker with a non-compete agreement, specify their name, and be delivered to the individual by hand, mail, email, or even text message.
  • Additionally, the Final Rule allows for causes of action related to existing non-competes that arise before the effective date of the rule to proceed, meaning violations of current non-competes can still be enforced after the effective date, so long as the violation occurs before the effective date.
        • Section 910.3(b) states that the rule does not apply “where a cause of action related to a non-compete clause accrued prior to the effective date.”
  • The FTC estimated that banning non-competes will result in:
    • Reduced health care costs: $74-194 billion in reduced spending on physician services over the next decade.
    • New business formation: 2.7% increase in the rate of new firm formation, resulting in an additional 8,500 new businesses created each year.
    • Rise in innovation: an average of 17,000-29,000 more patents each year.
      • This reflects an estimated increase of about 3,000 to 5,000 new patents in the first year non-competes are banned, rising to about 30,000-53,000 in the tenth year.
      • This represents an estimated increase of 11-19% annually over a ten-year period.
    • Higher worker earnings: $400-$488 billion in increased wages for workers over the next decade.
      • The average worker’s earnings will rise an estimated extra $524 per year.

Selected Commentary by Three Major Law Firms[5]

Seyfarth:[6] FTC Non-Compete Ban: What You Need to Know

A. How is non-compete defined?

“The final rule defines ‘non-compete clause’ as ‘a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.’ Again, those terms should be construed broadly.”

B. What are the exceptions?

“There are industry-specific exceptions based on certain industries excepted from the Federal Trade Commission Act (“the FTC Act”). Specifically, the rule does not apply to banks, savings and loan institutions, federal credit unions, common carriers, air carriers and foreign air carriers, and persons and businesses subject to the Packers and Stockyards Act. Outside of those industries, the major exceptions include (1) existing agreements for “senior executives” (defined below), (2) non-competes entered into in connection with the bona fide sale of a business, and (3) non-competes enforced where the cause of action accrued prior to the rule’s effective date.”

C. Does this rule replace state laws regarding non-competes?

“The rule preempts state laws only where they conflict with the final rule. Put differently, the rule allows for customer non-solicits, but California state law does not. If the rule remains in place, customer non-solicits will continue to be void in California. The patchwork of state-level income and notice requirements for non-competes would also remain in effect.”


D. Are fixed-term agreements covered by the ban?

“No. Fixed-term employment agreements with non-competes during the employment term are not covered by the ban.”

Carter/Ledyard:[7] FTC Adopts Rule Barring Virtually All Non-Competes with Workers

A. The Rule Applies to Employees, Independent Contractors, Interns and Others

  •  “The rule bars non-compete agreements with ‘workers.”’ The rule defines a ‘worker’ asa natural person who works or previously worked, whether paid or unpaid,’ for a person or entity.”
  • “The definition of worker specifically includes not only traditional employees, but also individuals classified as independent contractors, externs, interns, volunteers, and apprentices.  Thus, the rule covers employees as well as natural persons working as independent contractors or in virtually any other capacity.”
  • “The rule does not cover workers at entities that are not within the scope of the FTC’s rulemaking authority, such as non-profit health care organizations.”

B. Anticipated Legal Challenges

  •  “The FTC’s rule seeks to upend an entire area of law historically regulated by the states, not the federal government.  The rule is certain to be challenged, including on grounds that it is unconstitutional, and the FTC exceeded its rulemaking authority.”
  • “The two [Republican] FTC commissioners who voted against the rule both stated that they believed that adoption of the rule violated the FTC’s constitutional authority. At least one litigation challenging the rule was filed shortly after the rule was adopted by the FTC.  In addition, the U.S. Chamber of Commerce announced that it plans to challenge the rule in court before the FTC formally adopted the rule. “

Arnold and Porter:[8] FTC Releases Final Rule Prohibiting Non-Competes

  •  “A non-compete clause includes provisions contained in both contractual terms and employee handbooks, whether written or oral. The FTC states in the preamble that this Final Rule does not categorically prohibit other types of restrictive covenants, such as non-disclosure agreements or non-solicitation agreements, which do not by their terms prohibit a worker or penalize a worker for seeking or accepting other work or starting a business after they leave that job.”
  • “Non-solicitation agreements can satisfy the definition of a non-compete clause where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends, which is a fact-specific inquiry. Although the FTC does not define which types of non-solicit agreements prevent a worker from seeking other work or starting a business after their employment ends, non-solicit agreements prohibiting solicitation of employees appear to be unaffected.”
  • “A policy-making position means an entity’s president, CEO or equivalent, or other officer of a business or natural person who has final authority to make policy decisions that control significant aspects of a business entity or common enterprise (which does not include authority limited to advising or exerting influence over policy decisions or having authority to make policy decisions for only a subsidiary or affiliate of a common enterprise).”
  • “If an officer of a subsidiary or affiliate has policy-authority for the common enterprise, and not just a subsidiary or affiliate of an entity that is part of the common enterprise, then this person has policy-making authority for the purposes of these rules.”


             As an attorney who regularly represents managing directors and others in the securities industry transitioning from one firm to another, it has been my experience that few employment contracts include non-competition provisions; confidentiality restrictions, the non-solicitation of fellow employees and of clients, yes, but not the prohibition to compete in one’s profession, even if the radius of that prohibition is minimal. There is a good reason for that: Licensed professionals should be permitted to be free to grow in the business they do well in and to continue to provide important financial services to the investing public.  The idea of telling any professional that she or he cannot pursue their chosen profession serves no purpose except to stifle one’s goals in life. The new regulation sends a strong message to employers: while there are ways to protect your business, this is not one of them.



[1] https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

[2] In the opinion of the international law firm of Seyfarth: “The challenges are largely focused on the lack of statutory authority for the FTC to enact these kind of substantive rules, and particularly for a sweeping rule that affects millions of agreements nationwide. See the discussion above. While there are no guarantees, based on recent Supreme Court decisions regarding the major questions and non-delegation doctrines, there is a significant chance of the rule being enjoined before it goes into effect.” April 25, 2024 https://www.seyfarth.com/news-insights/ftc-non-compete-ban-what-you-need-to-know.html

[3] https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf

[4] April 25, 2024 https://www.seyfarth.com/news-insights/ftc-non-compete-ban-what-you-need-to-know.html

[5] Many well-respected international law firms assessed the FTC Rule on their websites. This is just a sampling.

[6]  April 25, 2024 https://www.seyfarth.com/news-insights/ftc-non-compete-ban-what-you-need-to-know.html

[7] April 24, 2024 https://www.clm.com/ftc-adopts-rule-barring-virtually-all-non-competes-with-workers/

[8] April 24, 2024 https://www.arnoldporter.com/en/perspectives/advisories/2024/04/ftc-releases-final-rule-prohibiting-non-competes

[i] © 2024 David E. Robbins. of Kaufmann Gildin & Robbins LLP [www.securitieslosses.com] is a long time member of the board of this publication. He represents investors, brokers and firms and is the author of Securities Arbitration Procedure Manual and the Securities Arbitration Practice Commentary for McKinney's Consolidated Laws of New York.