On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning agreements which prohibit employees 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 [non-compete] term or condition, or (2) operating a business in the United States after the conclusion of the employment that includes the [non-compete] term or condition.” According to the FTC, non-compete agreements are unfair methods of competition that violate Section 5 of the FTC Act. Existing non-compete agreements with “senior executives” may be permitted, but all other non-compete agreements will no longer be enforceable after the rule’s effective date. Going forward, employers will not be able to enter into or enforce any new non-compete agreements for any workers. However, non-disclosure agreements (NDAs) will still be allowed.
The final rule will become effective 120 days after publication in the Federal Register. For more information, see the FTC press release or Fact Sheet on the final rule. The U.S. Chamber of Commerce has already filed suit against the FTC, challenging the rule, as well as filing a motion to stay the effective date.
In Hawaii, non-competes have been limited in scope since the February 2022 decision by the Hawaii Supreme Court, which ruled that a non-compete is unenforceable if its only purpose is to prevent competition. To be enforceable, the agreement had to be necessary to protect legitimate business interests (for example, trade secrets, confidential information, or special customer relationships).